How to qualify for a home loan if you are self-employed

Nathan Gooley
Sep 29, 2021
Yard Financial Pty Ltd | ACN 623 357 513 | Australian Credit Licence 509481

Table of Contents

Self employed and looking to get finance to buy a property or refinance an existing home loan? 

Due to the variable income of self-employed individuals, lenders have different criteria for assessing you for a self employed home loan. Understanding this can give you an insight into what you may need to do to meet their requirements and help increase your chances of getting approved. 

Read our guide to understand everything you need to know about self employed home loans, including: 

  • When are you considered ‘self employed’?
  • What are self employed home loans?
  • How long do I need to be self-employed to get a home loan?
  • What to prepare when applying for a self employed home loan?
  • Lending conditions for self-employed loans
  • ‘Low doc’ or low documentation home loans

Let’s first define what being self-employed is, in the eyes of a lender.

When are you considered ‘self employed’?

Generally lenders will consider you self-employed if you do not have a regular fixed income as a salaried wage earner. This includes anyone who runs their own business or who operates as a sole trader, consultant or freelancer. 

Company directors and shareholders can also be considered self-employed, even if they receive a salary from the business. Lenders will typically assess the financials of the business, including directorship status, debts with the ATO and if the company is registered for GST. 

Let's now understand what exactly a self-employed home loan is.

What is a self employed home loan?

There are typically no dedicated home loans for self-employed individuals, rather lenders will use a different set of criteria to assess your income. This means you can have access to the same interest rates and home loan features as salaried applicants. 

The primary difference is the way a lender will assess your income, and the documentation you need to provide to them in this regard. This all relates to your serviceability - a lender’s assessment of your ability to repay a mortgage or home loan. This is designed to limit their exposure to risk, and calculate out how much debt you can manage. Depending on your risk profile some lenders may charge you a higher interest rate.

Let’s now look at what criteria lenders are looking for, including how long you have been self-employed.

How long do I need to be self-employed to get a home loan?

Generally you have to be self-employed for at least two years for lenders to consider your application. If you have been working for less than two years some lenders will take into account your previous career or work experience. For example, Yard can consider professionals (e.g. doctors, lawyers, IT professionals) who have recently become self-employed and have traded under an ABN for at least 6 months.

Tip: The key is to demonstrate that you have consistent income, your business is growing, and there is a clear long-term trend of increased earnings.

Let’s now look at what documentation lenders will require for your mortgage application.

What to prepare when applying for a self employed home loan?

As we mentioned above you will need to provide all the same documentation as a salaried applicant, including an outline of your income, employment details, expenses, assets and liabilities and savings history. 

Individual lenders may also have slightly different documentation requirements depending on if you’re a sole trader, partnership or company. 

Because you are self-employed you will also have to provide the following documentation to your lender, covering the last two years:

  • Company tax returns
  • Financial statements
  • Personal tax returns
  • ATO notice of assessment
  • Business activity statement (BAS) 

You will also need to provide the date of your ABN and GST registration. Your ABN and GST registration can help prove that you have been working and have a consistent stream of income.

Tip: Keep all your old payslips, bank statements and BAS (Business Activity Statements) to avoid any delays to your home loan application. 

You also need to be aware of the conditions and restrictions lenders can apply to a self-employed loan.

What are the lending conditions and restrictions for self-employed loans? 

Conditions attached to a self-employed home loan vary depending on the lender. To calculate your self-employed income, a lender can use the lowest income figure for the last two years, or the income as recorded on your most recent company tax return. Others may take an average of the last two years' income. If you are running a business some lenders may also add any unusual/one-off expenses you have incurred back into your overall income - called an add-back. 

Lenders will also require your personal tax returns and notice of assessment to confirm the income information you provide matches what you submitted to the ATO.

If you are unable to provide all the above documentation, or have only been self-employed for a short period of time you may still be able to obtain a loan.

What is a ‘low doc’ home loan?

‘Low doc’ or low documentation home loans are an option if you can’t provide proof of two years of income via tax returns. Instead you provide a signed accountant declaration of your income, alongside your bank statements.   

This type of loan is best suited to freelancers or small business owners who have just started out and don’t quite meet the criteria for a ‘full doc’ home loan. Low doc home loans also have slightly different conditions and restrictions, including higher interest rates and a requirement to put down a larger deposit - typically 20%. This is because the LVR (loan to value ratio) lenders apply is often 80% due to the increased risk profile. 

Now you have a better understanding of how these loans work, the next step is to speak to one of our home loan specialists, so we can check your eligibility and assist with your application.

Have any questions about self-employed home loans - or anything else? We’re happy to help, and our local team are available to chat at a time that suits your schedule.

Want to learn more?