How to find the right home loan when self-employed

While there may not be restrictions on the kinds of loan you can apply for as a self-employed borrower, you may have to work harder to prove to lenders that you can repay the home loan. It’s important to study all borrowing options available to you before choosing a mortgage, as the best home loan for a self-employed borrower may not be the best choice for another.

Finding the right home loan as a self-employed borrower often involves not only comparing mortgage deals, but comparing the mortgage lenders that offer them. This can give you a better idea of which banks and non-bank lenders are more likely to approve a home loan application from a self-employed borrower.

To get you started on your journey, you may want to ask yourself the following questions: 

What type of home loan do you need?

Before you start comparing home loans, it’s important to establish whether you plan to buy a property to live in as an owner occupier, or to rent out as an investor. This will affect the home loan you may be eligible to apply for.

You may also want to consider whether you’d like to fix your home loan interest rate. Fixed rates stay the same for a limited time before reverting to a variable rate, which may rise or fall with the market.

There are other specialised home loan options available to suit some situations. For example, a construction loan can help you build a home upon a plot of vacant land, while refinancing your current home loan could let you access a line of credit based on your equity in the property.

How much do you need to borrow?

Lenders often consider self-employed borrowers to be at higher risk of default than other borrowers, due to their less consistent incomes. Because of this, you may not immediately be able to borrow as much money as an applicant who earns a regular wage or salary. You also may not be able to access as many extra features and benefits.

Calculating your borrowing power can give you an estimate of the maximum amount a lender may approve, though this is a guide only – individual lenders will make their own assessments based on their own criteria.

What’s your deposit?

The bigger the deposit you can afford to pay upfront, the more you can reduce the lender’s risk. This may allow you to benefit from lower interest rates, more features and benefits, or an increased borrowing capacity.

If you already own a property, you may be able to use your equity in place of a deposit instead, whether you’re refinancing or purchasing a second investment property.

What does the lender require?

While a typical home loan may require the borrower to provide payslips and bank statements to prove their income and expenses, home loans for self-employed borrowers may require different paperwork.

Exactly what you’ll need may vary by lender, but could include:

• two years of company tax returns;
• two years of other financial statements (e.g. profit and loss statements);
• two years of personal tax returns, or;
• date of ABN and GST registration.

To help improve your chances of approval, you may want to confirm that you can quickly provide the necessary documentation.

How complex is your financial situation?

Many self-employed Australians tie their finances up in their businesses, often at the advice of their accountants. While this can be effective for managing cashflow and/or minimising tax, it can sometimes distort the state of your finances and make it harder for a bank ofr mortgage lender to accurately assess your risk and borrowing power.

You may need to look for a lender whose staff can efficiently process your application, even if it’s unlike what they’re used to dealing with. Keep in mind that this may take a little more time to process, so you may not be able to benefit from fast-track mortgage assessment services offered by some lenders.

Do you need more help?

Finding and applying for a home loan can sometimes be more complex as a self-employed borrower than for other applicants. One way to make this easier could be to get help from a mortgage broker.

These home loan experts can assess your needs and financial situation and match you with lenders that may offer what you’re looking for. Additionally, mortgage brokers can help managemanaging the paperwork and liaise with the lender on your behalf, hopefully resulting in a quicker and smoother home loan application.  

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