When it comes to the documents required for home loans for self-employed workers, there are a few choices. One of these choices may involve making a trade-off between what you can afford and what you’re eligible for.
For instance, lenders may recommend low documentation (low doc) home loans if they struggle to confirm your earnings. However, this usually requires you to pay a higher deposit, which may significantly hit your budget. So, you should find out how the documents you submit can impact the terms of the home loan you're eligible for.
What home loan documents can I submit as proof of income if I’m self-employed?
If you’re self-employed, home loan documents - especially income documents - can take time and effort to put together, and you may need to consult an accountant. From a lender’s perspective, there are three types of income documents that you can submit. In order of importance, they are:
- Income tax returns: These are the ideal income documents, especially if you have been self-employed for more than two years. It could mean you don’t need to submit any additional documents certifying your income, and you may qualify for a full documentation (full doc) home loan. Lenders might ask for notices of assessment in addition to the income tax returns.
- Self-certified income statement: This is an option for those who’ve been self-employed for less than two years, but it may only help if you apply for an alt doc or low doc home loan. Lenders may ask you for additional documentation, such as an accountant’s statement or proof of prior work experience in the field you're working in.
- Accountant’s statement: Lenders will sometimes ask for an accountant’s statement as an additional document when you apply for an alt doc home loan. Even then only as a backup in case you’re unable to produce other documents.
How do I prove that I’m successfully self-employed?
Your ability to repay a home loan can depend on the success of the business in which you’re self-employed, and lenders will seek to confirm this based on the details you provide. In most cases, your business’s financial statements may be the only acceptable document. You should also have statements reflecting at least one year of your self-employment just in case.
Lenders offering alt doc home loans may accept a declaration from you, your Business Activity Statements (BAS) and a statement from your accountant. If you maintain a separate bank account for your business, you can also submit the statements for that account. You may need to confirm that the lender isn’t offering you any type of business loan. It’s best that you take out a home loan that’s tailored to your personal circumstances.
Why does my home loan lender need my personal bank statements?
Even if you qualify for a full doc home loan, you may only be able to borrow up to 80 per cent of your home’s value. You’ll need to pay the remaining amount upfront, which is why your lender asks for your bank statements, to verify whether you have money saved up to pay the deposit.
If you don’t have a separate business account, your personal bank statements may help a lender gauge your financial wellbeing. For instance, early in your career as a self-employed worker, you may have faced cash flow issues. If your bank account shows no overdraft during this phase, it can indicate you have good money-managing skills.
Does it matter if I’ve had loan repayment issues in the past?
Most Australian home loan lenders check your credit history, and in particular your history of loan repayments. This is to gauge whether there is a chance that you may not repay the home loan. However, having had repayment issues in the past doesn’t always negatively impact your home loan application. You may be able to explain to the lender why you had those issues, and how you worked around them. Which can suggest that you will handle future loan repayments better, by building on your experience.