Find and compare self-employed home loans

Yes, it is possible to get a home loan if you’re self-employed, but there are some additional details you will need to provide in order to prove you are not a risk for a lender. 

When it comes to home loans for self-employed individuals, a lender may consider self-employed individuals a higher risk than other borrowers because of the uncertainty tied to ongoing employment and therefore the ability to make regular repayments. For a lender to consider you for a loan, you need to be able to prove you have the cash flow to repay the loan they provide you and this is usually done by proving you have ongoing employment.

There's no escaping the fact that a lot of banks and other lenders will view your application differently when you’re self-employed and because of this, they may be stricter around what they require from you for the application process or restrict the home loan products you have access to. But this doesn't mean it isn't possible to find the right option for you.

For salaried people, proof of a job with a stable employment history is usually all that is required in terms of your employment, but for self-employed borrowers, your income may be less predictable, which lenders will view as a risk you may miss repayments and will impact your borrowing power. 

The goal is to prove that you’re still a safe investment and you may need to take some extra steps to do this.

For example; while salaried borrowers will usually only need to provide their employment history and their most recent payslips, you may need to provide your personal and company tax returns for the last two years, your business details including ABN and any other financial statements that prove you’re a safe investment for a lender.

As well as providing extensive financial documentation, you can take some other steps to support your application for a home loan. 

Higher deposit - The more money you can put forward at the beginning of the loan process, the less risk for the lender. A bigger deposit will lower your LVR, lower the size of the repayments you will need to cover and significantly improve your risk profile. It also proves you’re able to budget and save, which is a good impression to be able to provide lenders. 

Excellent credit score - As someone who could be considered higher-risk for a loan, you don’t want anything in your history that shows you have struggled to repay debt in the past. An excellent credit score and no defaults or outstanding debt will help a lender look at you as someone who is financially responsible and therefore less of a risk. 

It may also help your application if you have paid off any personal loans or credit cards, or can prove you make regular, or additional, repayments on these. 

Connections to full time work - One of the concerns for a lender when it comes to self-employed borrowers is that you could struggle to find employment if your own business fails or the work dries up. 

If you have recent work history you can point to this shows you are able to find employment if need be and that you have employable skills to fall back on.

The easiest way to find a home loan if you’re self-employed is to reach out to a mortgage broker for assistance. They will know the requirements from each lender and what you’ll need to do to satisfy them, meaning a lot less work for you and a much bigger chance you’ll be approved. 

You will likely need to provide proof of income for the last two years. If you have been self-employed for those two years, that may take the form of:

• Personal tax returns for the last two years 
• Business tax returns for the last two years and business bank statements
• Financial documentation from the last two years (these can include profit and loss statements as well as a letter from your accountant)
• ABN and GST registration information

If you have been self-employed for less than two years you may need to provide additional information about your previous employment. This may include:

• PAYG statements
• Payslips
• Letters of reference from your previous employer

Each lender will have its own specific requirements which may differ slightly from the above, but this is a good place to start. To be eligible for a mortgage, you need to prove to a lender you are financially stable, have consistent income, have the potential for business growth and have a long-term trend for earning.

Many lenders are trained largely toward traditional employment, which is why it can make the process a lot easier to engage a broker, but if you are self-employed and considering purchasing a home in the next few years it’s important to keep good financial records to make it easier to satisfy eligibility requirements when the time comes. 

One concern for lenders is that a self-employed worker’s income can vary significantly, especially in the first few years of self-employment. The income criteria applied by most lenders involves looking at your tax returns or income statement to find out what is the highest income you can possibly earn. For this reason, lenders may apply different calculations based on the documents you provide. 

Some lenders may take your most recent income as the highest, while others may prefer to average your income over the past two years to arrive at an estimate. On the other hand, a lender who feels you pose a greater credit risk may choose to take the lowest amount earned to see if you can still make loan repayments if you only earn that much. You should consider asking your accountant to examine your tax returns or income statement to ensure that your earnings are reflected accurately, lessening the chance that lenders don’t underestimate your financial capability and ability to repay the loan.

If you cannot satisfy the requirements for a loan with your existing documentation, you may still be eligible for alt doc, low doc or no doc loan options. 

Non-bank lenders may be the only option for some self-employed individuals, as they are often more flexible than banks or other lenders. 

An accountant or broker can be your best friend in the process of preparing your financial documentation for a home loan application. If your income isn’t in the position that it should be, your accountant or broker can look at any large expenditures and see if there’s the option for add backs.

What is an “add back”?

Your taxable income may not reflect your actual income, or the first year or two as a self-employed individual may include some expenditure that won’t be ongoing. An accountant or broker can look at your returns and identify any expenses that you have incurred which have reduced your taxable income but aren’t ongoing such as:

• Additional payments into your superannuation
• One-off expenses such as set up costs for your business
• Assets that can be written off
• Expenses on an investment, such as rental property expenses

There are several loans you have access to as a self-employed person. 

Full doc

A full documentation home loan means you have access to all the documents a lender needs from you for a complete home loan application. This will include the above eligibility requirements, as well as any other extra documentation a lender requires. A full documentation home loan may give you access to some of the best products and rates if you are approved, because you’ve proven to a lender that you’re a viable candidate. 

Alt doc

An alternative documentation home loan is for self-employed individuals who don’t have access to the exact documentation a lender usually requires, such as two years of tax returns, but can provide alternative documents to prove their eligibility. Some lenders also refer to alt doc loans as low doc loans, or low documentation home loans, or may offer both options depending on your situation. 

You will need additional documents to prove your financial situation. This can include additional bank statements or business activity statements (BAS). Depending on the lender, you may have access to the same rates and products as a full doc borrower, although it may limit the number of lenders you will be eligible for. An alt doc or low doc home loan may also have restrictions on how much you can borrow. 

No doc

Not all banks and lenders offer no documentation loans and the lending criteria is very strict in line with responsible lending requirements. To qualify for a no doc home loan you essentially need to declare that you can make the repayments.

Because of the high risk of no doc loans, there will be some caveats, which will be specific to each lender. This can include higher interest rates, a risk fee, restrictions on the loan amount, and some lenders will require you to take out LMI (lenders mortgage insurance) to cover the risk. 

No doc loans may be suited to people who have recently become a small business owner or a sole trader or who don’t have a regular income, such as freelance workers or seasonal workers. Because these home buyers aren't as safe an option as someone who has been employed long-term or has impeccable financial records, you will likely have to pay more than other borrowers. 

You will also often still need to provide bank statements or a letter from your accountant to prove you have financial stability. You will also usually need a good credit history.

• Compare your options: There may be fewer lenders available to you as a self-employed person, particularly depending on your requirements, so it’s important to review the options. It’s also important to compare advertised rates and comparison rates, as the home loans with the lowest rates may not be the best home loans for you, or even the cheapest. The comparison rate combines the costs of interest, fees and charges into a single percentage, so you can quickly get a better idea of how much a home loan may cost you overall. Rate City allows you to compare options from over 120 lenders to help you find the right match for your circumstances. 

• Calculate your budget:Consider using a mortgage calculator to work out how much you can borrow, what your repayments could be, and how much you can pay as a deposit (including grants and incentives). This will help you get an idea of how much you can borrow in your circumstances. 

• Check Real Time Ratings™: A quick way to estimate the cost and flexibility of a home loan before you enquire is to look at the scores with Real Time Ratings™ which is updated daily to more closely indicate a home loan’s overall value. You can also compare some of the top-rated home loans on the RateCity Leaderboards, or look for which mortgage has won a RateCity Gold Award.

• Check the fees, features and other benefits: Not all of a home loan’s fees and charges are included in its comparison rate. Consider checking for any extra costs that you may need to pay, to avoid nasty surprises. Also, some mortgage lenders have special offers for new customers, such as interest rate discounts or even cashback. Consider the value of these deals before you apply, and don’t forget to check the eligibility criteria and the terms and conditions.

• Speak to an expert: Before you begin the process of applying for your home loan, you will need to have an idea of the documentation and eligibility criteria that you will need to satisfy. Your accountant can help you get all of this in order and a broker will be able to advise on the best lender to match the documentation you can provide and your financial situation.

Applying for a home loan can be a complicated process, which is only complicated further when you are self-employed. A broker can help if you’re considering a mortgage as a self-employed individual because it’s likely they’ll already have experience in the process and will be able to advise exactly what you need to provide to satisfy a lender. 

Between full doc, alt doc, low doc or no doc loans, there are several options available for self-employed Australians, but each has its own criteria and requirements. A broker will be able to break these down for you and find the right lender to match your requirements. They should be able to cut through the jargon and find the best lender for your situation, while also being able to advise on anything you can do to improve your application.