Being self-employed gives you freedom, right? But when it comes to applying for a mortgage it can be challenging, you’ll likely find that your income can be the biggest obstacle. Lenders are more cautious and often have stricter criteria and policies but the good news is – With the right advice, preparation and approach, getting a mortgage as a business owner, freelancer, or contractor is absolutely possible.
Common challenges for Self-Employed Borrowers:
- Proving Your Income
Many self-employed people do not have a clear understanding of their actual income. Lenders want documented proof, not just estimates. - Having Enough Business History
Most lenders require 2 years of financial records (some even 3 years).
If your business is new, your options may be more limited. - The Tax Dilemma
Your accountants job is to reduce your profit to minimise your taxable income (which makes sense for tax purposes). But if you declare your income too low, you could struggle to show enough income to qualify for a mortgage. - Applying to the Right Lender
Lenders are more conservative with self-employed and often have stricter policies. Choosing the wrong lender could lead to an unnecessary decline. Banks are not the only option for self-employed borrowers.
How Do Lenders Assess Self-Employed Income?
The key documents most lenders will ask for include:
- Financial Statements
Preferably prepared by an accountant. If this is not possible than IR3, IR4, or IR7 documents maybe required. - Business Bank Statements
Generally 3 to 6 months is required. - Details of Any Business Debt
This includes loans, overdrafts, and credit facilities.
If your business has had an unusual one off expense (eg – buying expensive equipment or hiring staff), be prepared to provide context.
Additionally, some banks will accept “Add Backs” which are specific expenses that can be added back to your income to increase the amount you can borrow. This could include depreciation (on assets like machinery or vehicles), home office expenses or interest on business loans.
With all of this information, lenders will assess your borrowing power and financial position. By providing organised and transparent records, you can improve your chances of securing the loan you need.
4 Ways to Strengthen Your Mortgage Application
The key documents most lenders will ask for include:
- Work with your Mortgage Supply Co Adviser
We’ll guide you through the process, find the right lender and put together a strong application to secure the home loan you need. - Work with your accountant (Early!)
If you’re planning to apply for a mortgage in the near future, tell your accountant now. Getting your Year Ends completed nice and early will show the bank the most up to date overview of your income. - Keep your financials tidy and up to date
Using accounting software like Xero makes it easy to track your business income and expenses. Keeping these records updated will make the mortgage application process smoother. - Strengthen your financial position
Lenders want to see stable and growing income. Consider:
Increasing Revenue – Closing more sales or getting outstanding invoices paid can improve your cash flow.
Reduce unnecessary expenses – Keep overheads low and minimise short-term debt.
The key to getting a mortgage when you’re self-employed is preparation and expert guidance. At The Mortgage Supply Co, we understand the unique challenges business owners face.
Get in touch today, and let’s secure the right finance for you!
