Key Points

self Employed
Home Loans

Looking for a self-employed home loan? Here is your guide to applying for a home loan and getting approved if you own a business.

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Being self-employed offers great freedom but can make securing a home loan more challenging. Self-employed individuals must show reliable income proof and meet specific criteria. This guide will help self-employed borrowers understand how to get a home loan, what documents to prepare, and ways to improve approval chances.

Key Points of Self-Employed Home Loans

Self-employed home loans, while not a separate loan type, cater to those who own businesses, freelance, or consult. Lenders may classify these borrowers under different categories and consider their ABN (Australian Business Number), tax returns, and financial statements. Challenges include providing consistent income proof, but options like low doc loans help.

Qualifying Criteria for Self-Employed Home Loans

Eligibility Requirements

To qualify for a self-employed mortgage, having an active ABN is essential. Lenders look at the business type, trading structure, and how long the business has operated. Whether you’re self employed as a sole trader, in a partnership, or under a company or trust structure, you may need to provide at least two years of tax returns or some alternative documentation to prove income stability.

Common Issues and Solutions

One major challenge is that self-employed people must provide thorough income proof. If unable to provide tax returns to prove your income, low doc loans may offer a solution. These require less documentation but might come with a higher interest rate.

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Documentation Required for Self-Employed Home Loans

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Full-Doc Loans

Full-doc loans require comprehensive financial documents. Lenders need to see personal and business tax returns from the last two years, ATO Notice of Assessment, and profit and loss statements. Lenders will look at a combination of your personal taxable income and the business profit when assessing your borrowing capacity.
Although most lenders require the last two years’ tax returns, there are some lenders that can consider just 1 year of tax returns. This might be useful if your most recent year was more profitable than previous years.

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Low-Doc Loans

For those missing some documents, low doc loans are an option. These loans allow borrowers to use income declarations, BAS statements, and bank statements instead of full financial statements and tax returns. However, low doc loans may come with higher interest rates and fees, reflecting the higher risk for lenders.

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Simple Self-Employed Loans

For those who trade under a company or trust structure, and have paid themselves a consistent salary for at least 6 months, there are now lenders who may accept that salary without tax returns.

By understanding and leveraging inventory finance, Australian business owners can effectively manage cash flow, capitalize on growth opportunities, and maintain operational stability. Using the outlined steps and advice, you can make informed decisions and choose the best inventory finance options to support your business needs.

Applying for a Self-Employed Home Loan

Steps to Apply
  • Begin by organising updated financial records, such as personal tax returns, business tax returns and bank statements.
  • Demonstrating consistent income is key.
  • Work with a mortgage broker at Mortgage World Australia to navigate the loan application process.
  • Find the best lender and loan package.
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Tips to Improve Approval Chances

  • Improving your approval chances involves maintaining a good credit score,
  • avoiding late payments on current debts, and tracking your cashflow.
  • Consulting an accountant can ensure that your financial records are mortgage-ready.
  • Always plan and save for taxes to show financial responsibility.
  • Lenders may request evidence that your business and personal tax payments are up to date.

Lending Conditions and Restrictions

Financial Stability and Income Proof

Lenders assess business income differently. Some might use your lowest income from the past two years, others the most recent year, or average for the two years. If the income has increased by more than 20% in the most recent year some lenders will only accept 120% of the prior year’s income. 

A mortgage broker at Mortgage World Australia can assist in determining which lenders fit your situation.

Interest Rates and Deposit Requirements

Interest rates for self-employed home loans depend on factors like credit score and deposit size. Larger deposits improve your chances and terms. Low doc loans often require a higher deposit and might incur LMI if borrowing over 60% of property value. Low doc loans also typically have higher interest rates.

Refinancing Options for Self-Employed Individuals

Benefits of Refinancing

Self-employed individuals can benefit from refinancing through lower interest rates, better loan terms, and debt consolidation.
It is often the case that a low doc loan may be used to obtain the initial home loan. Once tax returns are available to apply for a full doc home loan self-employed borrowers can refinance for a lower interest rate.
To prepare, ensure your financial records are detailed, show business stability, and build equity through additional repayments or home improvements.

Conclusion

Securing a mortgage as a self-employed individual involves challenges, but with careful planning and the right assistance, it’s achievable. To give yourself the best chance of being approved it is important that tax returns and Business Activity Statements (BAS) are kept up to date. For personalised advice, consult with an expert mortgage broker at Mortgage World Australia.

FAQs

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Lenders will use the figures that appear on past tax returns to determine serviceability for a home loan. Tax returns are required to qualify for a full doc mortgage which offers lower interest rates. The exception to this is the simple self-employed policy where some lenders may consider the consistent salary paid in the past 6 months without the need for tax returns.

Lenders handle fluctuating income differently. Some use the lowest income figure from the past 2 years, others the most recent year’s income, and some average the two years. Also, some lenders won’t consider more than a 20% increase in self-employed income in the most recent financial year. A mortgage specialist at Mortgage World Australia can help find the lender that suits your situation.

Yes, some lenders accept six months of payslips instead, if you are an employee of your own company or trust. In addition to the payslips you may need to supply a letter from your accountant, confirming the business is profitable, and/or a YTD Income Statement obtained from my.gov.au.

Options include full-doc loans, low-doc loans (also known as Alt Doc Loans), and guarantor home loans.

Not necessarily. If you can prove income stability and affordability, you may qualify for competitive rates.

An ‘Add Back’ refers to certain expenses shown on your tax returns that can be added back to your income for loan assessment purposes. Some examples of add backs include:

✅ Depreciation
✅ Non-recurring expenses
✅ Instant Asset Write off’s
✅ Interest on business debt

It’s challenging but possible. If your business is in the same line of work as your previous PAYG role, some lenders accept income from previous employment history and other documentation to assess your ability to repay the loan.
If you are a Medical Professional such as a General Practitioner you may also qualify for a home loan with as little as a few months of self employment. Consult with a mortgage broker at Mortgage World Australia for the best options.

Lenders track industry data and may consider trends within your industry. If your industry has a high default rate, it could affect your loan eligibility.

Some banks may consider your self-employed salary as income without the need for business tax returns and financial statements. One or more of the following documents will be required”

✅ 6 months’ bank statements showing consistent salary credits
✅ Payslips with at least 6 months of YTD income
✅ Income Statement(s) confirming 6 months of income
✅ Accountants letter confirming the business is profitable and can meet its commitments

To qualify for a self employed home loan, you’ll typically need to provide proof of income for at least one financial year, demonstrate consistent earnings, and provide business financial statements if you are a business owner. The exact requirements can vary depending on the lender.

A low doc loan, or low documentation loan, is designed for self-employed individuals who may not have the traditional proof of income documents. It relies on alternative documentation such as bank statements, BAS statements, or an accountant’s letter to verify income, making it easier to get approved for a mortgage.

Being a self-employed business owner may impact your borrowing power because lenders often view self-employed income as less stable than salary income. Lenders will closely scrutinise your financial statements and income proof to determine the level of risk and your eligibility for the home loan.

A self-employed home loan application typically requires documents such as recent tax returns, financial statements, business activity statements (BAS), bank statements, and proof of ongoing contracts or client invoices. The specific home loan requirements can vary by lender and the type of loan.

Working with a mortgage broker can be beneficial if you are self-employed and looking for a home loan. A mortgage broker from Mortgage World Australia can help you compare thousands of home loan options and guide you through the specific lending criteria for self-employed loans, increasing your chances of getting approved.

A low doc home loan differs from traditional home loans by requiring less stringent income verification. Instead of standard tax returns and financial statements, a low doc home loan might use bank statements, BAS statements, or other alternative proofs of income. This can be beneficial for self-employed individuals who may not have standard documentation.

To improve your chances of getting approved for a home loan when self-employed, ensure you have detailed and accurate financial records, maintain a good credit score, reduce existing debt, and consider working with a mortgage broker. Additionally, saving a larger deposit can demonstrate financial responsibility and reduce lender risk.

Yes, there are special home loan products available specifically for self-employed individuals, including low documentation (low doc) loans and self-employed loans. These products are designed to cater to the unique financial situations of self-employed borrowers and often have more flexible documentation requirements.

Yes, a PTY LTD company owner can get a home loan without traditional income documentation using low documentation (low doc) loan options. These loans require alternative forms of proof of income, such as bank statements or an accountant’s declaration.

A PTY LTD company owner may also qualify for a home loan if the company has paid a consistent salary for the past 6 months.

Why not give us a call, or send us an email and get a direct response from one of our finance experts. We’d be happy to give you a hand and help point you in the right direction.

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aPPLY ONLINE CALL: 1300 66 12 11