Can you get a home loan if you’re self-employed?

If you’re self-employed and thinking about applying for a home loan, you may be wondering where to start.

A lot of the advice for house buyers tends to focus on people who can produce a pay slip from their employer to prove their income.

But if you’re your own employer, what can you do?

The good news is, it’s totally possible to get a home loan if you’re self-employed.

Here’s what you need to know.

The challenge

Self-employed people face some unique challenges when it comes to applying for a home loan, but they need not stop you.

Unlike people who have a job and can show the bank an employment contract or a steady stream of income coming into their accounts from their employer, you’ll need to meet other criteria to prove your income.

Depending on how long you’ve been in business for yourself, there are a few ways you can do that.

Proving your business income

The most common way that self-employed people prove their income is to provide at least two complete years’ worth of financial statements.

These need to include a balance sheet that shows your business’s financial position, usually at the end of the tax year, a profit-and-loss statement and a potentially a cashflow statement too, showing money moving through your business bank accounts.

You might also need to produce two years’ of tax summaries.  You generally need to be paying tax in New Zealand.

Your accountant is likely to be able to help you to pull together the financial information you need.

As your adviser, we can also guide you on how your financials are stacking up from an application perspective and any extra information that might help your application.

Note that if you claim a lot of business expenses, this can reduce your tax, but also has an effect on your business profit. If you know there is a home loan application in your future, you might think about reducing your business expenses for a period, if you can.

If your business is newer, it can be more of a challenge. You might ask your accountant to pull together a cashflow forecast based on the performance to-date of the business, and projecting that into the future. If you have key contracts with larger customers that indicate ongoing streams of income, you may be able to provide these, too.

What if your income changes?

Not every self-employed person earns income in a uniform way. If you’re in the sort of sector where your income can fluctuate, or you have a very seasonal approach to your work, you may need to take a different tack. If you’ve been in business for a while, that might mean  averaging out your income in your application.

Look at your options

In lots of cases, it’s possible to get a loan from a mainstream lender as a self-employed person. New Zealand is a country of small businesses, so most lenders are very familiar with the prospect of self-employment.

But if your application doesn’t quite fit the mould yet, you don’t necessarily need to give up.

Sometimes some outside-the-box thinking can help get an application across the line.

Many non-bank lenders have capacity to deal with self-employed people who only have some or even none of the normal documentation required.

Terms from them are likely to involve a higher interest rate than you might pay at a mainstream bank, but it can give you the flexibility to buy your house, and then potentially think about refinancing your lending later, when you can meet the mainstream lenders financial information criteria.

We can help you to explore your options and consider the best path to get to your property goals.

We’re here to help

As a businessperson, you probably already know the value of having good people around you. When you add us to your team, we can act as your personal mortgage experts, helping you to navigate the process of applying for a loan and considering all the potential options available.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.