Buying a home is an exciting time, especially when you’re looking to purchase so that you’ll have more space to run your business. But as a sole trader, you may have challenges that employees do not have.  Guest writer Katie Conroy offers the following insights.

What is a Sole Trader?

A sole trader is an individual running a business. If you operate your business as a sole trader, you are the only owner and you control and manage the business. The primary difference between an employee and a sole trader is that an employee receives a paycheck from another entity and has taxes taken out. There is an easily verifiable paper trail. This is an important differentiation since it’s much harder to qualify for a home loan when you are self-employed. However, as Your Mortgage explains, some lenders specialise in low documentation home loans.

Preparing for the Loan Application

When it’s time to buy a home, a typical buyer will gather their pay slips from their employer. As an entrepreneur, you will need to be able to provide your lender with a business activity statement. You will also need to provide at least three to five years’ worth of tax returns, and/or documentation from your accountant showcasing your earnings. 

Next, take a look at your credit score. The average credit score in Australia ranges anywhere from 500 to 700 out of up to 1200 potential points. A good credit score is anything above that 700-point threshold. This doesn’t mean that you can’t get a home loan with a 500-point credit score. It is just that it will be more difficult, particularly since you’re a non-salaried person, and that your interest-rate will likely be much higher.

Before you submit your application, make sure you have your documentation together and know your credit score. It will also help if you have at least 20% of your target purchase price available in cash. Bank West notes that your deposit, which may be as low as 5%. But you will be required to pay lenders mortgage insurance (LMI) unless you have at least 20% equity.

The Home Buying Process

Once you have been approved for a loan, you’ll know how much you can afford. Now you can begin the homebuying process. Hopefully, you have your deposit set aside, and you can move forward without any glitches. Now, how do you decide which type of home to buy?

If you want to get the most for your money, you can buy something that needs work. You can potentially save thousands of dollars buying an as-is property, although it’s a smart idea to research the home and property thoroughly before you do this. You may also want to consult a solicitor and look at land records as well as the property’s history.

No matter what type of home you plan to invest in, it’s almost always best to stick at the lower end of your price range. You should also consider using a real estate agent. The real estate agent will help you weed out homes where you may not be able to run your business. This can happen when local zoning laws prohibit a commercial operation in a private residence.

A few things to look for in your new home (aside from enough living space for your family) are whether or not you will have a bathroom available to business guests and whether you have room for an office or workshop away from the main corridor of your living area.

Conclusion

Buying a home is exciting and buying a home to accommodate the expansion of your business is even more so. But there are challenges. As a self-employed person, you will have to work that much harder to prove your income and qualify for a loan. Fortunately, with a bit of diligence, you can make the process go smoothly and find the home (and office) of your dreams.

John De Ravin’s Slow And Steady 100 Wealth Building Strategies For All Ages is available for purchase online.