Are you self employed? Here’s What banks look for when buying a home 🏠👷‍♂️

Key Takeaways

• Income Proof Strategy: Banks usually look for two years of financial statements (Profit & Loss, balance sheets, cash flow reports). However, 12 months of financials can be accepted if you're newly self-employed.
• Specialist Options: Freelancers or business owners with variable income can leverage alternative documents—like cash flow forecasts or client contracts—or explore specialist, non-bank lenders.
• Realistic Expense Budgeting: Lenders evaluate your household expenses against actual spending habits. A strong budget shows clear financial responsibility while still leaving room for lifestyle enjoyment.
• Business Debt Impact: Business loans and commitments are factored directly into your personal borrowing power based on your shareholding, even if the business pays for them directly.
• Collaborative Planning: Partnering early with your accountant and a Loan Market Central adviser simplifies the documentation process and significantly improves approval odds.

Being self-employed comes with many benefits, but getting a mortgage can be more complex. Traditional banks often require self-employed individuals to provide more extensive documentation to prove their income. This typically includes two years of financial statements, which should cover the end of the financial year, such as balance sheets, profit and loss statements, and cash flow reports. These documents help lenders assess your financial stability and ability to repay the loan.

If you're new to self-employment, proving income can be tough without two years of financial records. You might need a cash flow forecast or customer contracts to show earning potential. However, banks are entertaining 12 months' worth of financials if you have just begun being self-employed.

For freelancers with irregular income, a proven history is generally required to get potential mainstream support or specialist lenders can be a good alternative, offering more flexibility in considering unique financial situations.

In addition to proving your income, lenders will also want to see a budget that outlines your household's monthly expenses. This budget should be realistic and reflect your actual spending habits. While it's essential to demonstrate financial responsibility, it's also important to show that your budget allows for some enjoyment, such as dining out or taking holidays, making it easier to stick to.

Banks look at business debt and incorporate it into your personal position when reviewing your ability to get a residential loan, for a home or an investment property. Even though the business may be paying for that particular debt, or a percentage of the business debt is allocated based on shareholding allocation. Working alongside your accountant or internal accounts person can be very useful to get smoother traction to achieve positive financial outcomes.

In summary, being self-employed doesn't mean you can't secure a mortgage, but it does require a bit more preparation and documentation. By understanding what lenders are looking for and exploring all your options, including non-bank lenders, you can increase your chances of getting the home loan you need. Don’t hesitate to reach out if you or anyone you know could benefit from having a chat with us.