Being self-employed in Australia doesn’t disqualify you from getting a home loan and while the application process may be slightly different in terms of requirements, having the knowledge of how you can apply for a home loan before you become self employed will make the process simple and straight forward.
If you’re self employed and looking to secure a home loan for your first home, to purchase your next home, or kickstart your investment portfolio, we can break down the process of what’s required and give you the best chance to get your home loan approved.
Here, you’ll find out exactly what’s involved in applying for a self employed home loan including the additional documents required.
Who is considered a self-employed borrower?
Do you meet the lenders definition of being ‘self-employed.’ They will typically consider you self-employed if you:
- are a non-PAYE taxpayer
- are the primary decision-maker of the business
- have direct control over the work you do, hours you work and who you employ
- are independent of external controls
- contributes all or most of the operating capital
Examples of self-employed borrowers include:
- sole traders
- any person in a partnership
- business owners
- some tradespeople
- a person who operates their business from home
- If you fall into one of those categories your lender may consider you to be self-employed. This will likely mean the documents required to apply for a home loan will be a bit different to people who are not self employed.
Home loans for self-employed borrowers vs salary-earners
The main difference between self employed borrowers vs salary earners in the eyes of the lender is risk. The income generated by those running their own business may fluctuate each month, and is often not guaranteed, putting you at a higher risk of defaulting on your loan repayments than those who are earning a set, regular salary.
Before you apply for a home loan, think about how you can demonstrate to the lender that you’re a safe and reliable borrower. The process will generally involve providing more detailed information about your financial situation through additional documents.
Documents you’ll need as a self-employed borrower
If you’re self-employed and want to apply for a home loan, you need to demonstrate evidence of your business’ financial position. Most lenders do this by looking at your past tax.
Self employed home loan requirements
The requirements you will need to supply when applying for a home loan can vary between lenders. However, here is a guide to some common requirements:
- Proof that your ABN has been registered for at least 2 years
- Last 2 years’ personal and business tax returns and ATO assessment notices
- Balance sheet and profit and loss statements covering the most recent 2 years
- Details of any external liabilities: leases, hire purchase, overdrafts, company loans and/or guarantees
- Last 1 month’s business bank statements
Depending on whether you’re a sole trader, partnership or company, you’ll need to show different types of documents.
For Sole traders:
Last 2 years’ personal tax returns, as well as your latest ATO notice of assessment.
Business partnerships, companies and trusts:
- Personal tax returns, supported by each year’s ATO notice of assessment
- Business, company or trust returns
- Financial statements (including profit and loss statements, and balance sheets)
The more information that you can provide in the first instance with you application will help the lender to assess your eligibility for the home loan more quickly. Other things to consider having ready with your application include:
- tax-deductible expenses
- interest repayments (if you have a business loan)
- rental property and one-off expenses, depreciation
- asset write-offs
- company car deductions; and
- family trust distributions.
What is a low doc home loan?
A low documentation home loan (otherwise known as a low doc home loan) is offered by some lenders to self-employed borrowers who may not be able to meet all documentation requirements of a regular home loan application.
Some documents that may be accepted instead of regular documentation include:
- A signed Borrower’s Income Declaration stating your usual income
- Your registered business name
- Your Australian Business Number (ABN)
- Your Business Activity Statements (BAS) for the last 12 months
- You may need to confirm that you have been registered for GST for at least 12 months
Low doc loans generally require a slightly lower loan to value ratio (LVR) than other borrowers, which may require a larger deposit or a higher amount of equity to qualify for the loan.
Your mortgage broker can help you with which low doc home loan lenders will be most suitable to your unique situation and requirements. All lenders have different requirements for documentation.
If you’ve recently started your own business, that doesn’t mean you have no chance of getting a loan. It just means using the services of an experienced mortgage broker become very important.
You shouldn’t be put on a higher interest rate just because you’re self-employed. Once you’ve found the right loan, you should have access to the same rate, features and benefits as a salary earner. Modern lenders are always adapting and some even specialise in these kind of loans, but using a mortgage broker to guide you through the application process for a loan when you’re self employed is likely to make your life so much easier and give you options depending on your unique requirements.
If you’re self employed and looking for help with your home loan, we’d love to discuss how we can help. You can get it touch today or book an appointment now.
The above requirements state that in order to get a home loan when self employed you will need to ensure your business is operating for at least 2 years in order to provide the correct documentation.
Self employed home loans have this requirement due to the income structure of being self employed not being seen as financially secure as an individual with a PAYG employment. Therefore lenders prefer to receive at least 2 years of your business’ performance to get an understanding of the seasonal changes that occur and provide additional certainty in your income stream.
However, If you are self employed for under 2 years, there are some solutions available to you to get a home loan. If you do not have 2 full years of experience operating your business, lenders may require you to at least work in your industry for longer than two years and provide old payslips and references from former employers. This can be used to identify your work and income history prior to starting your own business.
Low and No Document Home Loans
A low documentation (low doc) home loan is a type of loan that is suited for self employed borrowers who can’t supply conventional proof of income required for typical home loans.
It is important to note that a low doc loan is different from a no doc home loan. A no doc home loan involved obtaining a home loan without any proof of income. A no doc home loan is no longer available for all borrowers due to the features of this loan type not meeting the National Consumer Credit Protection Act (2009) requirements.
A low doc loan is beneficial to the borrower as it involves a simplified income declaration form and involves using alternatives to tax returns as income evidence. It is important to note that this loan type does not involve providing less evidence of income, as it’s about providing alternative sources to prove your income.
Whilst a low doc loan is a useful tool for self employed borrowers to apply for a home loan, the increased risk perceived by the lender may result in a higher-than-average interest rate and more limitations in terms of the maximum loan to value ratio (LVR).
Find out more on the pros and cons of a low doc loan here to determine if it’s the right loan for you.
Not all lenders will offer a low doc loan, so before applying it’s worth sitting down with an experienced mortgage broker to work out your net income and the amount of loan you can realistically afford to service on a regular basis.
All lending subject to status and lenders criteria. Terms & conditions apply. This document contains general information only. Your own personal circumstances have not been considered and you should seek independent financial advice prior to making any decision on a financial product.
