Getting a Mortgage as a Self-Employed Individual: A Guide to Home Financing

For self-employed individuals, securing a mortgage can often be more challenging than it is for traditional employees. Many lenders require extensive documentation to verify income, which can be difficult for business owners, freelancers, and contractors who may not have standard pay slips. However, there are options available that cater specifically to self-employed borrowers. As a business advisor, I often recommend exploring different mortgage solutions to help self-employed individuals achieve homeownership. In this article, we’ll explore how self-employed individuals can successfully obtain a mortgage, their financing options, and key tips to improve approval chances.

Challenges of Getting a Mortgage When Self-Employed

Self-employed borrowers often face additional scrutiny from lenders due to the variable nature of their income. Common challenges include:

  • Irregular or fluctuating income, making it harder to prove financial stability.
  • Lower taxable income, as many business owners write off expenses to reduce tax liability.
  • Increased documentation requirements, such as tax returns, financial statements, and profit & loss reports.
  • Limited lender options, as not all financial institutions offer self-employed mortgage solutions.

Despite these challenges, self-employed individuals can still secure a mortgage by taking the right steps.

Types of Mortgages for Self-Employed Borrowers

1. Full Documentation (Full Doc) Mortgages

These are standard home loans where borrowers provide comprehensive financial records, such as:

  • Two years of personal and business tax returns.
  • Profit and loss statements.
  • BAS (Business Activity Statements) for at least 12 months.
  • Business bank statements showing consistent cash flow.

A full doc mortgage offers the most competitive interest rates and loan terms, making it ideal for those who can meet the documentation requirements.

2. Low Documentation (Low Doc) Mortgages

Low doc mortgages are designed for self-employed individuals who may not have traditional financial records. These loans allow borrowers to verify income using:

  • Business bank statements (6-12 months).
  • Accountant declarations.
  • BAS statements or profit and loss reports.

While low doc loans provide greater flexibility, they typically require higher deposits (20%-30%) and may have slightly higher interest rates.

3. Alt-Doc and Specialist Lender Mortgages

Some non-bank lenders offer alternative documentation (alt-doc) mortgages, which require less paperwork but assess borrowers based on:

  • Business performance and cash flow.
  • Industry risk and future earning potential.
  • Asset position and financial history.

These loans are ideal for borrowers who struggle to meet traditional lending requirements but can demonstrate strong business fundamentals.

How to Improve Your Chances of Mortgage Approval

1. Maintain Clean and Accurate Financial Records

Lenders need clear proof of income, so keeping well-documented financial records is crucial. Ensure you:

  • Keep updated business bank statements.
  • Prepare accurate profit and loss statements.
  • Work with an accountant to ensure tax returns reflect true earnings.

2. Save for a Larger Deposit

A higher deposit reduces lender risk and increases your chances of approval. Aim for at least:

  • 20% deposit for standard loans to avoid Lender’s Mortgage Insurance (LMI).
  • 30% deposit for low doc or alt-doc mortgages to secure better interest rates.

3. Improve Your Credit Score

Lenders assess your credit history when evaluating mortgage applications. Improve your creditworthiness by:

  • Paying off outstanding debts.
  • Avoiding late payments on credit cards or loans.
  • Reducing unnecessary credit applications before applying for a mortgage.

A strong credit score can help secure better loan terms and lower interest rates.

4. Demonstrate Business Stability

Lenders prefer self-employed applicants who have been in business for at least two years. If your business is newer, consider:

  • Providing contracts or projections of future income.
  • Submitting a letter from an accountant verifying financial stability.
  • Highlighting long-term client relationships that indicate consistent earnings.

5. Work with a Mortgage Broker Specializing in Self-Employed Loans

A mortgage broker can:

  • Identify lenders that cater specifically to self-employed borrowers.
  • Help navigate the application process and ensure proper documentation.
  • Find the most competitive interest rates and loan features.

A broker can simplify the mortgage process and increase approval chances.

Pros and Cons of Getting a Mortgage as a Self-Employed Borrower

✅ Pros:

  • Access to tailored mortgage solutions that suit variable income earners.
  • Various options available, including low doc and alt-doc loans.
  • Opportunity to secure a home loan without waiting for years of tax returns.

❌ Cons:

  • Higher deposit requirements for low doc and alt-doc mortgages.
  • Some lenders charge higher interest rates due to perceived risk.
  • Additional documentation requirements compared to PAYG employees.

Final Thoughts

While getting a mortgage as a self-employed individual comes with challenges, it is entirely possible with the right approach. By maintaining strong financial records, saving for a larger deposit, improving creditworthiness, and working with a mortgage broker, self-employed borrowers can secure a home loan that suits their needs. As a business advisor, I encourage self-employed professionals to explore different mortgage options and take proactive steps toward homeownership while maintaining financial stability.

The Team at The Accountants and The Finance Brokers are here to help you navigate your cash flow requirements in your business. We offer complimentary cash flow reviews and assist you in understanding your finance needs.