Due in part to the increase in self-employed borrowers, Australian lenders have shifted how they view borrowers in the last couple of decades. It used to be that when applying for a home loan lenders would look poorly upon you if you didn’t have a steady job and a regular salary going back many years.
Now, home loan requirements have changed and include many ways of proving your income, especially if you’re self-employed and don’t have payslips from an employer. If you’re self-employed, you may not see keeping track of your earnings as a priority, but it’s crucial when applying for a home loan.
Can self-employed people get home loans?
If you're self-employed, you can still apply for a traditional home loan if you have all the necessary documents required by lenders.
Conventional home loans are often referred to as a full doc home loan, due to the number of documents needed to apply. These documents include your tax returns, profit-and-loss statements, and bank statements. However, since you’ll need to submit tax returns for the past two years, you may not qualify if you began self-employment less than two years ago.
Suppose you’ve been self-employed for over a year. In that case, you can submit alternative or fewer documents to apply for an ‘alt doc’ or ‘low doc’ home loan, as long as you meet the lender’s criteria for borrowing. You can prove that you’re steadily self-employed by submitting your business activity statements (BAS) or similar financial information. A low doc home loan usually comes with some unique terms:
- You can’t borrow as much as through a ‘full doc’ home loan.
- You probably have to pay a higher initial deposit.
- Your loan interest rate will be higher.
The table below offers a glance at the various documents you may need to present when applying for different home loans. Ideally, you would compare various lenders’ home loan requirements and opt for a lender offering a home loan that you can easily fulfil the application requirements.
|Type of home loan||Documents required|
|Full doc home loan||
|Alt doc or low doc home loan||
How to get approved for a home loan when self-employed?
Home loan applications can be complicated without also including that lenders consider the self-employed more likely to face financial issues which can hinder them repaying a home loan. At the same time, getting your home loan application rejected can affect your credit score and, as a result, your chances of applying to a different lender.
To increase your chances of getting your application approved the first time around, you should carefully consider your circumstances as well as different lenders’ loan requirements. To assist with this, you could compare home loan offers online to see what the different requirements are across lenders.
A good first step towards getting a home loan if self-employed can be making sure you are documenting your business’s continued success and earnings. This will be helpful as it supports you as a self-employed borrower to prove your income and business stability.
Lenders may also be more optimistic about you as a borrower if you’ve previously worked in the same business area as an employee. From a lender’s perspective, this suggests you can return to regular employment if you don’t succeed with self-employment.
You can also look at your savings and consider if you can pay a larger deposit. This can also help you decide whether to apply for a ‘low doc’ home loan, but you need to make sure you can afford a higher interest rate. You should also check for any outstanding issues with your credit rating and try to resolve those before applying for the home loan.