Over 1 million Australians[1] are swapping their nine-to-five jobs for the freedom of self-employment, picking up work from a variety of freelance jobs – from designing websites to data entry jobs.
Self-employment can be rewarding from both a financial and lifestyle perspective. The downside comes when you want to purchase a home.
Getting a mortgage can be a confusing and overwhelming process. And getting a mortgage when you’re self-employed seems even more daunting. Lenders look at different factors when determining whether to offer you a loan and what the terms of that loan should be.
One of the biggest factors lenders consider is the reliability of your income. If you’re a freelancer or some other type of self-employed worker, you’ll have to prove to the bank that you’re not a risky investment.
Self-Employed Mortgage? There’s No Such Thing!
Whether you’re employed or self-employed makes no difference to the mortgage products that you’re entitled to in Australia. Lenders just need to know about your ability to repay the loan – having a salary from an employer is an excellent way to demonstrate this, but there are other ways to prove that you’re good for the money if you’re self-employed.
Qualifying for a Mortgage If You’re Self-Employed: How Do You Do It?
Qualifying for a mortgage when you’re self-employed means proving to the lender that you can make your payments for the duration of the loan.
Here’s what lenders are looking for from self-employed mortgage applicants.
- Stay on top of your tax returns.
Without a regular payslip, lenders primarily rely on formal tax assessments to verify a self-employed mortgage applicants’ income. If you’re a freelancer, a temporary/contract worker, or if you’re self-employed, you need to be able to demonstrate a history of income by way of your tax returns.
Preferably, you should be able to present two years of tax assessments. But as an absolute minimum, most lenders require a borrower’s latest full tax return and a notice of assessment. If your last tax return is already 5-6 months old, you may also have to provide recent Business Activity Statements, to confirm that your cash flow is consistent and steady throughout the current financial year.
- Maintain good credit.
Typically, mortgage lenders look for a minimum credit score of 620. And while it’s entirely possible to qualify for a self-employed mortgage with a score that low, the likelihood of approval is better if your score is much higher.
Since income is almost always considered an issue with self-employed borrowers, a great credit profile can help to offset that risk. Having a credit score of over 700 will be a big advantage for you.
This is why it’s crucial for self-employed mortgage borrowers to regularly monitor their credit scores than it is for other borrowers. You need to be ready to correct any errors on your credit report and to ensure you’re maintaining a high score.
Bonus Tip: Find the right lender.
Perhaps the biggest key to getting any home loan approved is finding the right lender for your specific needs and circumstances. Every lender has different lending policies and some are more open to receiving self-employed mortgage applications than others.
Final Thoughts
As long as you’re able to prove your income with the right financial documents, you’ve been self-employed for at least 2 years, and if you’ve got a good credit history, lenders may give you access to the same types of home loan products as a salaried individual.
Need help with your mortgage application? Let me help you! Get in touch today so we can talk about your options.
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Will Bell Mortgage Broker is a mortgage and finance broker based in Melbourne specializing in residential home loans. Will is all about the average Australian understanding just enough of the broader economy to take action on your own personal economy. He is the host of the My Personal Economy Podcast which you can check out here.
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