Are you self-employed and dreaming of owning a home in Melbourne? You’ve worked hard to build your business, and you deserve a place to call your own. While securing a mortgage might seem daunting, especially when dealing with traditional lenders, being self-employed doesn’t have to be a barrier. With the right approach, you can navigate these challenges and achieve your homeownership goals. That’s where AxJ Finance Brokers comes in—here to simplify the process and guide you every step of the way.
1. Get Your Financials in Order
First things first—let’s talk about your financials. As someone who’s self-employed, your income might not look as predictable on paper as a salaried worker’s. That’s okay. What we need to do is show lenders that your income is steady and reliable.
Start by gathering two years of tax returns, profit and loss statements, and any other relevant financial records. These will be the foundation of your mortgage application.
But what if you’ve been in business for less than two years? Don’t worry, there are still options available. In this case, alternative documents like your Business Activity Statements (BAS), bank statements, and even a letter from your accountant can be used to verify your income.
Example: Sarah, a freelance graphic designer, had only been in business for 18 months. By providing her BAS statements and a letter from her accountant, she was able to demonstrate consistent income and secure a mortgage with a competitive interest rate.
The key is to show consistency and reliability in your financials. This step is crucial because lenders want to see that your business, and by extension, your income, is sustainable over the long term.
Tip: If you haven’t already, find an accountant who specialises in self-employed finances. They’ll not only help you organise your records but also provide insight into what lenders are looking for.
2. Maximise Your Borrowing Power
You might have heard that being self-employed can limit your borrowing capacity. While it’s true that some lenders are stricter, that doesn’t mean you’re out of options. In fact, many lenders have become more flexible, and we know how to guide you through this process smoothly.
One way to enhance your borrowing power is by identifying potential “add-backs” in your financials. Add-backs are expenses that can be added back to your income, such as depreciation, additional super contributions, and one-off costs. These adjustments can significantly increase your borrowing capacity by presenting a higher net income to lenders.
Tip: Schedule a meeting with your accountant and a mortgage broker to review your financials. They can help you identify add-backs and other strategies to boost your borrowing power.
3. Get Ahead of the Game by Starting Early
The Melbourne property market is competitive, and timing is everything. To give yourself the best chance of success, it’s important to engage with a mortgage broker early in the process. A broker who specialises in self-employed clients can help you navigate the mortgage process, find the right loan options for your needs, and make the application process easier.
It’s common for self-employed individuals to feel frustrated with traditional banks. You might have already experienced the runaround or been told that your borrowing options are limited.
But the truth is, times have changed, and there are more opportunities out there than ever before. We’re here to help you explore them.
Melbourne Market Insight: The Melbourne property market has seen varying trends, with some suburbs becoming more affordable due to recent changes in demand. Suburbs like Footscray and Preston are increasingly popular among first-time buyers, offering a balance of affordability and proximity to the city centre.
4. Explore Your Options
Let’s talk options. A few years ago, being self-employed might have meant you were stuck with higher interest rates or fewer loan products. But that’s no longer the case. Many mainstream lenders now offer competitive rates and flexible terms for self-employed borrowers.
And if you’re worried about the documentation, don’t be. While it’s true that more paperwork might be required, we’re here to guide you through it. We’ll ensure you have everything you need—whether it’s your tax returns, BAS, or even an accountant’s letter—so that you can secure the best possible deal.
Tip: Work closely with your mortgage broker to explore all available loan products. Don’t settle for the first option you find—compare interest rates, loan terms, and lender policies to ensure you’re getting the best deal possible. Your broker can talk to lenders for you and might get you better terms than you could on your own.
Alternative Lending Option: If traditional lenders are too restrictive, consider exploring non-bank lenders or specialist lenders who cater to self-employed borrowers. These lenders often have more flexible criteria and can offer competitive rates tailored to your unique situation.
5. Save for a Larger Deposit
In the Melbourne property market, having a larger deposit can greatly improve your chances of getting a mortgage and better loan terms. A deposit of 20% or more not only reduces your loan-to-value ratio (LVR) but also allows you to avoid Lenders Mortgage Insurance (LMI), which can add a substantial cost to your loan.
If you’re not quite there yet, don’t be discouraged. There are still options for borrowers with smaller deposits, although these may come with higher interest rates or stricter lending criteria. The key is to start saving as early as possible and to be realistic about what you can afford.
Tip: Set up a dedicated savings account for your home deposit and automate your savings. Even small, regular savings can add up. If saving up a 20% deposit seems difficult, discuss your options with your mortgage broker. They can guide you on whether to keep saving or to go ahead with a smaller deposit.
6. Plan for the Future
Buying a home is a long-term decision, so it’s important to consider your future plans. Will you stay in this house for the next 10-20 years, or is this a stepping stone to something bigger? Your answers will influence the type of mortgage you choose and how you structure your loan.
For instance, if you expect your income to increase significantly in the next few years, you might opt for a variable-rate loan that allows you to make extra repayments without penalty.
On the other hand, if stability is your priority, a fixed-rate loan could provide the security of knowing your repayments won’t change.
Tip: Take some time to outline your short-term and long-term financial goals. Share these with your mortgage broker so they can recommend a loan structure that aligns with your objectives. Planning ahead will help ensure that your mortgage works for you, both now and in the future.
Example: Consider John, a self-employed IT consultant who anticipated a significant income rise within the next five years. He chose a variable-rate loan, allowing him to make extra repayments as his income increased, reducing his loan term and saving on interest.
7. Take the First Step Today
Now that you’re prepared, it’s time to take action. The Melbourne property market can move quickly, so being ready to make an offer when the right property comes along is crucial. With your financials in order, your borrowing power maximised, and a clear understanding of your loan options, you’ll be in a strong position to secure the home you’ve been dreaming of.
Remember, buying a house is one of the most important financial choices you’ll make. With the right planning and help, you can confidently navigate the process and reach your dream of homeownership.
Tip: Stay in close contact with your mortgage broker throughout the home-buying process. They can help you make strong offers, manage the settlement process, and ensure everything goes smoothly from start to finish.
Wrapping Up:
Your dream of owning a home in Melbourne is within reach, even if you’re self-employed. The key is to start early, plan carefully, and work with professionals who understand your unique situation. Whether you’re just starting to think about buying a home or you’re ready to make an offer, we’re here to help.
FAQS On Self-Employed Home Buying
Yes, you can still get a mortgage if you’ve been self-employed for less than two years. Lenders typically prefer at least two years of financial records, but there are options available. You can provide alternative documentation like Business Activity Statements (BAS), bank statements, or a letter from your accountant to demonstrate consistent income. Some lenders also offer low-documentation (low-doc) loans tailored for self-employed borrowers with shorter business histories.
Lenders assess your income by reviewing your personal and business tax returns, profit and loss statements, and other financial documents. They may also consider add-backs, such as depreciation or one-off expenses, to adjust your income upward. The goal is to present a stable and reliable income over the past two years. If your income fluctuates, lenders may average it over a couple of years to get a more accurate picture of your earning potential.
To improve your chances of getting a home loan, ensure your financial records are accurate, complete, and well-organised. Work with an accountant who specialises in self-employment to prepare your documents. Save for a larger deposit, ideally 20% or more, to avoid Lenders Mortgage Insurance (LMI) and improve your loan-to-value ratio (LVR). Engaging a mortgage broker early in the process can also help you find lenders who are more flexible with self-employed applicants.
Not always. While some lenders might charge higher rates for self-employed people, many offer competitive rates similar to those for salaried workers. Your interest rate will depend on things like your financial health, credit score, deposit amount, and the lender’s rules. Working with a mortgage broker can help you compare different loans and find the best rate for you.
As a self-employed applicant, you’ll need to provide several key documents, including:
- Two years of personal and business tax returns
- Profit and loss statements
- Business Activity Statements (BAS)
- Bank statements (both personal and business)
- A letter from your accountant verifying your income and business operations. If you’ve been self-employed for less than two years, alternative documentation like BAS, bank statements, and an accountant’s letter can be used to verify your income.