Home loans for the self-employed: A step-by-step guide

Self-employed individuals make a common mistake by delaying their home loan considerations until they have already selected a property, according to Laura Žukovė, head of financing at Luminor bank.

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The biggest mistake that self-employed people make is starting to think about a loan only when they have already chosen a home. It often seems that finding a suitable home is the most important step, and financing is a subsequent stage. However, for self-employed individuals, it's the opposite: the earlier their financial situation is assessed and documents are prepared, the smoother the entire process will be.

Žukovė advises that for those working independently, the process should be reversed. "It often seems that finding a suitable home is the most important step, and financing is a subsequent stage. However, for self-employed individuals, it's the opposite: the earlier their financial situation is assessed and documents are prepared, the smoother the entire process will be," she explained. This proactive approach helps avoid the disappointment of losing a dream home due to insufficient preparation time.

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An advance consultation helps to understand the amount of financing one can expect, what documents might be needed, and whether it is worth strengthening one's financial situation for a while longer. This allows one to start the housing search with much more confidence and avoid unnecessary stress when a suitable home appears faster than one is prepared for a loan.

An initial consultation with a bank is highly recommended before starting the property search. This step allows potential borrowers to understand their borrowing limits, identify required documentation, and determine if strengthening their financial standing is necessary. "An advance consultation helps to understand the amount of financing one can expect, what documents might be needed, and whether it is worth strengthening one's financial situation for a while longer," Žukovė noted.

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Individual activity, a small partnership, or another form of self-employment is not inherently a risk. We assess whether income is received consistently, whether the activity has been carried out for a sufficient period, and how earnings have changed in different periods. Stability in this case is more important than one or several extremely successful months.

Banks prioritize income stability and predictability, regardless of how the income is earned. Whether through individual activity, a small partnership, or other forms of self-employment, lenders assess the consistency of earnings, the duration of the activity, and fluctuations over time. "Stability in this case is more important than one or several extremely successful months," stated Žukovė. She also emphasized the importance of organized financial accounting, timely income declarations, and clear financial documents, as these expedite the loan application evaluation process. Furthermore, maintaining financial discipline, such as consistently saving for a down payment, avoiding overdue obligations, and responsibly managing credit products, demonstrates an ability to plan long-term finances, which is as crucial as income levels.

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It is not less important to justify those earnings. Timely declared income, orderly accounting, and clear financial documents help to assess the situation and make a decision much faster.