Applying For A Home Loan If You Are Self Employed

A self-employed person, be it as a freelancer, a consultant or artist faces challenges in obtaining a home loan due to the fluctuating nature of their income sources. This article highlights some useful tips, which a self employed person can implement to succeed in achieving bank loans.

While you may be living the dream as a self-employed person, be it as a freelancer, consultant or artist, giving up a steady salary puts you in a challenging position when asking for bank loans. This is due to the fluctuating nature of income sources for the self-employed.

But no matter your employment status, loan applications are being rejected owing to various factors including property purchase cooling implements undertaken by Bank Negara Malaysia.

Even with all this negativity, you can still make yourself a prime candidate to receive financing, here’s what you can do to improve your chances:

  • Keep proper financial records in line with accounting standards

It’s good practice to maintain your accounts not just for the sake of a loan but for the overall management of your business. Not having a clear picture about your own profits and losses, expenses and incomes, will make it difficult for banks to estimate your level of affordability.

If you don’t have a basic understanding of how to manage the monetary ins and outs of your business, consider taking a short course or go the quick-fix route by hiring a bookkeeper to help you.

Note that the services of a good bookkeeper can be expensive, but it is a necessary expense because well-maintained records (showing healthy, regular earnings) indicate to banks that you are able to manage your finances well.

  •  Make regular EPF self-contributions

Let banks appreciate the consistence of your income by making periodic contributions to your EPF account for at least two years. If you are able, try to deposit every month to show steady income patterns akin to that of an employed person who draws a monthly salary.

Additionally, remember that savings from your EPF Account 2 can be withdrawn to reduce or pay off home loans. Thus, having a tidy sum in this account will provide an important assurance to the lending bank in that you do have backup options to maintain payments (if at some point you are unable to keep up with instalments).

  • Declare income taxes

Your income tax statement for the last three years can be an invaluable boost toward getting your loan approved. Why? Because it is proof that you are profitable and working backwards, you’ll see why it’s a big mistake to minimize tax payments by downplaying parts of your income (not to mention illegal).

Your skills as part of the self-employed workforce and your ability to be gainful will be measured in part by your income tax statement (plus, most loan applications require it anyway). In fact, it is a snapshot of your “official” finances, so if you want to buy a home with a bank loan, do declare everything and pay your taxes in full and on time.

  • Get a guarantor

To reduce the risk and liability you pose as a self-employed individual, find a credible guarantor to support your loan. A proper, reliable guarantor should have a strong employment background, and will essentially be evaluated on the same criteria as the loan applicant.

However, when engaging a guarantor, be upfront about your ability to repay the loan, as he or she will bear the financial and legal repercussions if you do not make good on repayments.

  • Work part-time

The major objection banks have with self-employed individuals is that their income is unstable. To counter such doubts without getting a full-time job, try getting a part-time one instead.

Banks will generally have more confidence if your employer is reputable, and at the very least a private-limited company (newly-formed enterprises do not hold as much weight).

Save salary slips from your part-time employment as proof of the minimum income guaranteed every month, in addition to other sources of earnings. Moreover, your employer can serve as a reference to further support your loan.

  • Show financial strength

Consider pledging collateral, in the form of other properties or financial assets like stocks, bonds, or a life insurance policy (promising absolute assignment to the lender). You might also want to open a fixed deposit account with the lending bank to back your position.

Additionally, if you can put down a greater deposit, you’ll improve your chances with a lower borrowed amount. Mortgages that offer 90% to 100% financing will be somewhat difficult to obtain. Try to apply for a lower interest, flexible loan that provides you more freedom to manage monthly installments.

You could also build a credit history by using a credit card, a good record of timely payments enhances your creditowrthiness.

While you work on strengthening your position to get your loan approved, take note of other matters that could equally hurt your chances:

  • Don’t rack up credit card bills or default on your borrowings in any way. These are red flags that will affect your credit status and severely hurt your chances of getting financing.
  • If you indeed have loan defaults or are in arrears, make sure to clear them off completely and wait 12 months (CTOS can hold debt information indefinitely) before applying.
  • Perform a self-check with CTOS and CCRIS  before applying for your loan and if there are any discrepancies, do contact them to seek clarification and rectify the issue.


Making the decision to work as an independent worker can be extremely rewarding, but of course freedom comes at a price. Your lack of ties to permanent employment in addition to fluctuating income will make you somewhat of a ‘risky’ candidate.

Nevertheless, there is a lot you can do to negate that perception, but as you may have noticed, planning ahead is key. Buying a house must not be a spur of the moment decision because you will need time to gather your financial strength as a self-employed individual.  In other words, showing a pattern of financial reliability is necessary in order to be seriously considered for a loan.

On the bright side, many self-employed individuals have successfully obtained home loans, so it is definitely an attainable goal – just improve your financial position, apply to more than one bank and keep your fingers crossed.