How to get a home loan when you're self-employed

How to get a home loan when you're self-employed

If you’re self-employed and looking to buy a home, it will help to know the process and the documents required to get a home loan, in case you need one. In the past, it was difficult to apply for a home loan if you didn’t have a steady job with a regular income, that’s been changing.

As a self-employed individual, you may not always have as steady an income as those employed by others, but this no longer impacts your ability to get a loan as much. You can apply for a loan that’s known as a full doc home loan if you can provide all the documents required by lenders. Alternatively, you can apply for an alt doc or low doc loan, which may have a higher interest rate but fewer documentation requirements.

Can self-employed borrowers get home loans?

Typically, an application for a traditional home loan requires the borrower to submit payslips as proof of employment and their latest bank statements to show sufficient savings for the deposit. However, as a self-employed borrower, you may not be able to provide those. Instead, submitting your tax returns for two years may fulfil this requirement. In the absence of those records, you can offer a self-certified income statement or a letter from your accountant confirming your income.

The lender will review the documents you’ve submitted to estimate your income and borrowing capacity. As there are likely to be significant fluctuations in income in the early years of self-employment, the lender will calculate the amount that they believe is predictable. To help ease the lender’s concerns, you could work with your accountant to collate documents that prove your income is sufficient and regular.

Ideally, you want to give lenders enough reason to trust you as a borrower and dispel any doubts that you can repay the home loan. You may qualify for a smaller loan with a possibly higher than expected interest rate if the lender can’t confirm your income.

How do I go about getting a home loan when self-employed?

At the time of applying for a home loan while self-employed, you need to pay a deposit, which means you need to have adequate savings. You also need to prove to the lender that you have the financial ability to repay the loan amount. Salaried people will likely find this part of the process easier than those who are self-employed. But as a self-employed borrower, you may opt for a low doc home loan, which requires less documentation, rather than a full doc home loan.

Here’s a quick look at the documentation required for different home loans types if you’re self-employed, that will help you make a more informed choice about which will suit you.

Type of home loan Documents required
Full doc home loan
  • Two years’ tax returns and assessment notices
  • Financial statements
  • Bank statements
Alt doc or low doc home loan
  • Self-certified income declaration, or accountant’s statement
  • Business Activity Statement (BAS)
  • Proof of Australian Business Number (ABN) and GST registration
  • Bank statements

How to get approved for a home loan if self-employed for over two years?

If you’ve been self-employed for two years or longer, you may be eligible to apply for a standard home loan. Once you submit all the required documents with your application, the lender will review your tax returns to determine your income. Some lenders will consider your highest income figure, especially if your income has increased significantly year to year, and others may go with the average.

Another aspect that lenders might take into consideration is the amount of time you’ve spent in your line of business before becoming self-employed. Lenders will also check your credit history. They will look closely at all previous loan repayments to understand if you pose a higher risk as a borrower.

Be careful when applying, because if your home loan application gets rejected, it could impact your credit history negatively. This change will then become an issue when applying for another loan. It might be a good idea to sit down with a financial expert or mortgage broker to understand the process of getting a home loan while self-employed and reduce the chance of rejection.

If your home loan is approved, you could borrow up to 80 per cent of the value of your home, as well as lower interest rates and other favourable home loan features.

How to get approved for a home loan if self-employed for under two years?

If you’ve been self-employed for less than two years, it may be simpler to apply for a low doc home loan as you won’t have the documentation needed for a full doc or standard home loan. With a low doc loan, lenders will ask for one year’s financial statements or might agree to a self-verified income statement along with a few months’ bank statements. The lender may also ask you about prior work experience in your chosen line of work.

Qualifying for an alt doc home loan makes you eligible to typically borrow about 60 per cent of your home’s value. If you need to borrow more, you might need to buy lenders mortgage insurance (LMI).

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Learn more about home loans

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

What is a debt service ratio?

A method of gauging a borrower’s home loan serviceability (ability to afford home loan repayments), the debt service ratio (DSR) is the fraction of an applicant’s income that will need to go towards paying back a loan. The DSR is typically expressed as a percentage, and lenders may decline loans to borrowers with too high a DSR (often over 30 per cent).

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.

How can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

What do mortgage brokers do?

Mortgage brokers are finance professionals who help borrowers organise home loans with lenders. As such, they act as middlemen between borrowers and lenders.

While bank staff recommend home loan products only from their own employer, brokers are independent, so they can recommend products from a range of institutions.

Brokers need to be accredited with a particular lender to be able to work with that lender. A typical broker will be accredited with anywhere from 10 to 30 lenders – the big four banks, as well as a range of smaller banks, credit unions and non-bank lenders.

As a general rule, brokers don’t charge consumers for their services; instead, they receive commissions from lenders whenever they place a borrower with that institution.

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

How does a redraw facility work?

A redraw facility attached to your loan allows you to borrow back any additional repayments that you have already paid on your loan. This can be a beneficial feature because, by paying down the principal with additional repayments, you will be charged less interest. However you will still be able to access the extra money when needed.

Mortgage Calculator, Loan Results

These are the loans that may be suitable, based on your pre-selected criteria. 

Mortgage Calculator, Repayment Frequency

How often you wish to pay back your lender. 

What factors does Real Time Ratings consider?

Real Time RatingsTM uses a range of information to provide personalised results:

  • Your loan amount
  • Your borrowing status (whether you are an owner-occupier or an investor)
  • Your loan-to-value ratio (LVR)
  • Your personal preferences (such as whether you want an offset account or to be able to make extra repayments)
  • Product information (such as a loan’s interest rate, fees and LVR requirements)
  • Market changes (such as when new loans come on to the market)

How will Real Time Ratings help me find a new home loan?

The home loan market is complex. With almost 4,000 different loans on offer, it’s becoming increasingly difficult to work out which loans work for you.

That’s where Real Time RatingsTM can help. Our system automatically filters out loans that don’t fit your requirements and ranks the remaining loans based on your individual loan requirements and preferences.

Best of all, the ratings are calculated in real time so you know you’re getting the most current information.