What you need to know as a self-employed borrower. 

Being self-employed is exciting, and no matter whether you are a sole trader, contractor or director, it’s a huge accomplishment. However, as many self-employed people know, there are many challenges too. Often you have to wear a lot of different hats and can end up working longer hours than an employee. When it comes to getting a loan, it can also prove slightly more tricky than for those on salary and wages. 

Below, we break down everything you need to know about getting a loan while being self-employed, as well as the best tips and tricks to get you pre-approved. 

When it comes to banks offering lending, the one thing they like to see is consistent income. Naturally, on salary and wages this is easy to prove thanks to a weekly or monthly payslip, however for most self-employed people it can be harder. The proof of income has to come from annual financial statements and profit and loss returns. Generally a bank likes to see two full years of business income that shows consistency, however there is the potential to consider 6-12 months of business income in certain instances, such as when the business has hit the ground running from an income perspective.

Usually we recommend our self-employed borrowers to engage an accountant to help prepare the necessary documents to satisfy the bank. If you can provide the bank with business statements that show the money is flowing in and the business is doing well, then there is no real reason why most banks wouldn’t approve your lending. 

If you can’t offer up two full years of statements, or your income over this time is less than what you are making now, you might need to look at an alternate lending option such as a low document loan. Low doc loans can be used for residential, investment or business property purchases. It’s essentially gaining a loan without having to prove your income using financial documents. There are some conditions attached to low doc home loans, so it’s important that you understand what you’re getting into. There’s a lot to think about like how to make repayments with a fluctuating income and how to get home loan pre-approval. 

If you are currently an employee who is considering becoming self-employed, we encourage you to wait until you have been granted your loan - it’s a lot easier that way!

As a self-employed borrower, you are still entitled to use the Kainga Ora products, including the First Home Loan, First Home Grant, and First Home Partner, so as long as you meet the criteria for each. Having the largest deposit possible also helps to make you more attractive to lenders, so we really recommend focusing on how you will pull your deposit together.

Here at Loan Market Queenstown, Wanaka, and Central Otago we are always working with self-employed borrowers to help them become approved for lending. We have a number of lenders and products at our disposal and can match you with the one that suits you best. If it isn't quite the time to buy, then we can also work with you to get your mortgage ready and give you tips and advice to ensure that when the time comes to borrow, you are in the best financial position possible.

Give our team a call on 03 441 1307 or click here to make an appointment to speak with one of our local mortgage advisors today.