Self-employed: how income is shown for a mortgage
Without payslips, income is assessed through your accounts. Which documents show it, why consistency matters, and what to sort out before you apply.
By Lidor Levin3 min readPreparing to apply
Employees have a payslip that shows their income every month. For the self-employed the picture is more complex: income varies, business and household spending sometimes mix, and the documents are accounts rather than payslips. Whoever reviews the application needs to understand how much the business actually brings in, and how steady that income is.
Which documents show your income
- Tax assessments for recent years.
- Financial statements from your accountant, and sometimes an up-to-date profit and loss statement for the current year.
- Bank statements for the business and the household.
- Further confirmations asked for by type of business, for example how long it has been running.
How many years back, and exactly which confirmations, varies between lenders. Find out in advance so you are not hunting for documents at the last minute.
The income in your accounts is the income assessed
Tax planning that lowers taxable income is legitimate, but in a mortgage application the income shown in your accounts is usually the one assessed. So it is worth thinking about a future mortgage when you plan your accounts with your accountant.
Stability and consistency
One strong year after weak ones tells a different story from three steady years. The reviewer looks at the trend, not only at the latest year. If one year stands out, up or down, be ready to explain it.
For illustration
Say a business showed a profit of ₪180,000 in one year and ₪260,000 the next. Together the two years can show growth, but also instability, depending on the trend and the explanation. The figures are for illustration only, and every business is assessed on its own numbers.
What to sort out before applying
- Separate the business account from your personal one as far as possible.
- Bring your accounts and assessments up to date so no years are missing.
- Talk to your accountant about the application in advance.
- Prepare an explanation for sharp changes in income.
The other documents, the ones every borrower prepares, are in the article on documents.
Explain variable income clearly
- Separate business turnover, profit and the amount available to the household; they are different figures.
- Show seasonal patterns, one-off receipts and changes in expenses alongside the documents explaining them.
- Agree with your accountant which current reports can be prepared, and reconcile their figures with the account transactions.
Common questions
What if the business has only been open a short time?
A short track record makes a trend harder to show, so the assessment can be more involved. Find out in advance which documents will be needed, and whether other details can complete the picture.
Can a salaried partner's income be included?
When there are several borrowers, everyone's income is assessed together. A salary alongside self-employed income affects the overall picture, so both are presented in an orderly way.
General information only, not personal advice. Every figure here is for illustration.
Further reading
Want to look at this for your own case?
On the intro call we'll go through your accounts and documents, and work out together what to sort out before you apply.
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