Home loans for sole traders and business owners

However, not every borrower can easily prove these things on paper, especially when income is inconsistent or financial assets tied up in a business entity. Self-employed borrowers are often challenged by not being able to present a raft of payslips and tax returns to back up a loan application.

That doesn’t mean all is lost. It just means a little guidance might be needed to navigate the requirements by lenders to make sure you’re positioning yourself as a trustworthy and viable home loan customer.

Many lenders offer low-documentation (known as lo-doc) loans for self-employed borrowers who don’t have the traditional paper trail required. In these situations, rather than the usual documentation to prove the ability to service a loan, borrowers can use bank statements, declarations from an accountant and other financial records.

However, as with any mortgage application you must still prove that your income outstrips your spending and you can service the loan. So before you start badgering your accountant or start digging up all the records you need, a few key steps will make sure you’re in the right place to secure the right loan for your dream home.

Reduce debt

Simple to say but sometimes harder to do. However, any potential lender will take an extensive look at your debts and examine how you manage them.

Start with the perceived ‘bad’ debt first. This means focus on paying down credit cards and any personal loans you may have. It’s also advisable to lower the credit limits as cards are paid down. If you have unused overdrafts or you’re not using these credit cards, consider cancelling them.

Lenders assess the total credit available to you as a potential debt level, not just any amounts you owe. The lower your current borrowings and the better your credit history is, the more likely it is you may be approved for finance.

Build up cash

If your debt is in a good place, unused credit facilities shut down and credit card limits reduced, make sure your cash balance is steady and strong.

Saving up a deposit is obviously important, as is showing your ability to live within your means while making those savings. It sounds obvious, but the key is showing your serviceability.

Lenders will usually want to see a strong history of consistent savings and regular debt repayments, so the longer the time frame you’re able to pay down debt and boost your savings could make a big difference to your borrowing power when you come to apply for a loan. If you can show at least a six-month history of high savings and low expenses, lenders will look favourably.

Call in your debts

While you consolidate your own debts, it’s a good idea to chase up any outstanding invoices as well. This cash is owed to you and can be the difference between not just the rate or home loan products available to you, but whether you can get a loan at all. That should be motivation enough to make sure those invoices are paid.

Don’t worry how it will look if all the money comes in at once. It’s better that it’s in your bank account than not!

Organise your finances

Debt levels and cash balances are critically important, but there are a few other things you can do to make sure you’re presenting as a responsible potential home owner.

Paper work and paper trails are your friend. If you haven’t already, make sure all of your BAS or tax commitments are complete and up to date. If you do owe anything to the ATO, make sure to pay your tax assessments on time. Not only will this save you from any potential fines, it will showcase a good standing as a financially responsible business owner.

Another element to review is how your finances are constructed. It’s a good idea to make sure your personal and business finances are clearly separated. Unless you’re a sole trader and borrow in your own name, money held inside your business structure is less influential when being counted among your assets.

Prepare your documents

If you’re comfortable with your debt levels, cash balances and your finances are as orderly as they can be, it’s time to organise your paperwork.

However you choose to kick off your engagement with a qualified mortgage expert, you’ll still be asked to supply a variety of documents. Identification requirements won’t change, you’ll still need to supply things like a passport, driver’s licence or other form of government ID. Non-photographic ID such as utility bills will also come in handy.

Lenders will want to see detailed financial information, so be prepared to include bank account statements as well as details of any personal or credit loans and debts, existing investments (such as term deposits and shares) or other existing assets (such as a car) and regular outgoings to service these assets.

Personal tax returns for the two most recent years will also be required, along with your most recent ATO Notice of Assessment. You should also have ready your most recent business tax return and business financial statements showing the past two consecutive years’ profit and loss information.