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How do I get a home loan when self-employed?
Getting a home loan when self-employed is, put simply, all about reducing your risk to the lender.
When you apply for a home loan, you’ll need to provide a few key things:
- A deposit;
- Proof you can repay the loan amount (borrowing power); and
- Proof of employment.
The latter is what makes getting a home loan when self-employed slightly more challenging, as you have less documentation, fewer 'stable' hours and more irregular cash flow, than a full-time employed borrower.
To try and obtain a home loan when self-employed, you'll want to show a lender through various ways that you're a reliable borrower. You may be able to improve your chances via the following:
- Save a higher deposit. While not guaranteed to get your loan approved, saving a larger deposit will always make a borrower look like a more reliable applicant. It's now recommended that you save at least a 20 per cent deposit, and for self-employed professionals, consider this the bar to start from. You'll also be able to avoid pesky lenders mortgage insurance (LMI) by saving a larger deposit.
- Prove you have connections to full-time employment. Depending on the lender, you may need to prove that you’ve worked for a specific amount of time in your line of business, especially if you have been self-employed for less than a year. Working in a role for at least 12 months looks more favourable on an application. If you've recently left full-time employment to be self-employed, this actually may be an advantage. If the lender feels that you may have a regular job you can go back to in the event you cannot sustain yourself while self-employed, you have a better chance of getting your home loan application approved.
- Have an excellent credit score. Lenders will likely take a close look at your credit history and any record of previous loan repayments to determine whether you pose a higher risk. It's worth keeping in mind that if your home loan application is rejected, it can affect your credit history negatively, and applying again for a loan may become difficult.
- Seek external assistance. To try and reduce your chances of being rejected, and to help support your application, you may consider consulting an accountant or another financial expert to guide you with the process. Further, consider contacting a mortgage broker to find out whether anything can be done to improve your chances of a successful home loan application. Mortgage brokers may be well equipped to make a self-employed home loan application look more favourable to lenders.
What types of home loans for self-employed people do lenders offer?
Based on the documents you can submit, your home loan can be considered either a full-doc or low-doc loan. While one of these may have a lower chance of approval, it may actually be beneficial depending on your circumstances.
- Full Doc Home Loan
If you apply for a full doc home loan, you will usually need to submit your latest income tax returns, business’s financial statements and business financial bank account statements.
Lenders may ask you to provide income tax returns, as well as notice of assessments, for the past two years, while the financial statements can be from the last year, and the bank statements for the recent few months.
You should remember that the home loan documents required for self-employed professionals likely differ from those required by people employed in other businesses. A salaried professional may be able to submit payslips for the past few months as proof of continued employment and taxable income. However, self-employed professionals are usually exposed to a thorough a financial vetting as salaried professionals.
- Alt Doc or Low Doc Home Loan
Ideal for those with low documentation, this type of home loan is an alternative document option offered by some lenders for workers who’ve been self-employed for less than two years.
Some lenders may accept a letter from your accountant certifying that your income is indeed what you claim it to be. Alternatively, they may ask for copies of your Australian Business Number (ABN) and GST registrations for the past year, along with business activity statements (BAS) going back at least six months.
While a low doc home loan may appear simpler and more convenient, you may not be able to borrow as much as you can through a full doc home loan, and may also be charged a higher interest rate. This is because some lenders may view self-employed individuals as at a greater risk of default on their home loan, as your income is less stable than that of a full time employed professional.
If you're applying for a low doc home loan, you may want to check with the lender if you can refinance your alt doc home loan to a full doc home loan at some point. Such a conversion can help you get either a higher loan amount or a more affordable interest rate.
- Regardless of whether you're salaried or self-employed, you can apply for all types of home loans, including fixed-rate mortgages, variable rate home loans, lines of credit and more.
How do I meet home loan eligibility criteria when self-employed?
When applying for a home loan, a lender will need you to meet its home loan eligibility criteria to improve your chances of approval. This typically includes criteria such as proof of identification, income and employment. While lenders have similar home loan criteria for self-employed professionals compared to fully employed professionals, the income documents required can differ in the application process.
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 repay the loan 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 the lender cannot verify your income, they may recommend that you choose a low doc home loan option, which will reduce the amount you can borrow or alternatively increase the cost of the home loan, or both. Self-employed professionals with a good credit rating, especially those able to afford a higher deposit, may be able to apply for a regular home loan, perhaps by submitting additional companion documents. In case you don’t meet the income criteria because you’ve been self-employed for less than one year, ask the lender if they’ll accept salary slips from your earlier full-time job.
This is where non bank lenders may be able to help you get your application over the line. Compared to traditional banks, some non bank lenders are specially designed to help self-employed professionals get home loan products.
What to ask yourself before applying for a self-employed home loan
Self-employed and not sure whether you qualify for a home loan? Consider asking yourself these questions:
- How long have you been self-employed?
Ideally, you’ve been self-employed for more than two years and can submit your tax returns, or show that you’ve registered for an ABN and GST for about that long. Alternatively, you’ve only been self-employed for a year or so, but you were previously earning a high salary in the same line of work and may be able to find a similar job again if needed.
- Are you able to certify your income as a self-employed professional?
Self-employment may not always be a golden egg, and sometimes you don’t end up earning as much as you hoped. But that could just be due to teething issues and you may have other ways of proving to lenders what you can earn while self-employed.
Whether you're a sole trader/small business owner or just dipping your toe into freelancing as a hobby, getting an accountant to prepare your financial statements and review your tax returns can be helpful. For instance, you may have made one-time payments, such as setup costs, that make your income seem lower and could be ‘added back’ to reflect your income more accurately.
- Is your work or business documented accurately?
Given that lenders often accept alternate documentation, you may want to review your business documentation from time to time. For instance, Business Activity Statements may also be accepted as part of home loan applications, but preparing them and keeping them up-to-date may need considerable efforts. Similarly, ensuring that your financial statements, especially the profit-and-loss statement, reflects the current state of your business can also be quite a task. You may also need to make sure you keep proof of your ABN and GST registration on hand when applying for a home loan.
- Do you need a home loan or a business loan?
If you're applying for a loan for a residential property you intend to live in or use for investment purposes, then a home loan should still be the best fit for your financial situation. However, if you're actually looking to get commercial real estate, such as a brick and mortar shop front, you may want to consider a business loan instead.
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Personal Finance Editor
Alex is a personal finance writer and editor at RateCity, and has been writing about finance for over five years. She is passionate about closing the gender pay and superannuation gap, and aims to help young Aussies to overcome their financial apathy and better manage their finances. Alex has been published in numerous print and online outlets, including Money Magazine, Lifehacker Australia, and Business Insider.
Frequently asked questions
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.
Can I take a personal loan after a home loan?
Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:
- Higher-income to show repayment capability for both the loans
- Clear credit history with no delays in bill payments or defaults on debts
- Zero or minimal current outstanding debt
- Some amount of savings
- Proven rent history will be positively perceived by the lenders
A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.
As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.
How do I apply for a home improvement loan?
When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying.
Besides taking out a home improvement loan, you could also:
- Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement. Speak with your lender or a mortgage broker about accessing your equity.
- Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
- Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
- Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.
How do you qualify for a CBA home loan with casual employment?
Qualifying for a home loan without a full-time job may be challenging, but it can be done. The first step is to understand how a CBA home loan is assessed when you have casual employment.
Most lenders will assess your expenses and savings while checking your loan eligibility, checking on factors crucial to home loan approval, such as if your bills are paid on time and what your credit score presently looks like.
Your income can be one of the most critical factors to determine your final approved home loan amount. As such, you’ll need to provide payslip copies to lenders to assist them in assessing your income during the loan tenure, regardless of your employment status, full-time, part-time, or otherwise.
Casual employees will want to be casually employed for at least 12 months to be eligible for a home loan. Alternatively, you want to have worked as a permanent casual worker (working for a fixed number of hours per week) for at least one month, or you should have been in your current job for a minimum of three months (if the hours are irregular) to be eligible for the loan.
Can I get a NAB home loan on casual employment?
While many lenders consider casual employees as high-risk borrowers because of their fluctuating incomes, there are a few specialist lenders, such as NAB, which may provide home loans to individuals employed on a casual basis. A NAB home loan for casual employment is essentially a low doc home loan specifically designed to help casually employed individuals who may be unable to provide standard financial documents. However, since such loans are deemed high risk compared to regular home loans, you could be charged higher rates and receive lower maximum LVRs (Loan to Value Ratio, which is the loan amount you can borrow against the value of the property).
While applying for a home loan as a casual employee, you will likely be asked to demonstrate that you've been working steadily and might need to provide group certificates for the last two years. It is at the lender’s discretion to pick either of the two group certificates and consider that to be your income. If you’ve not had the same job for several years, providing proof of income could be a bit of a challenge for you. In this scenario, some lenders may rely on your year to date (YTD) income, and instead calculate your yearly income from that.
How long does ANZ take to approve a home loan?
The process of applying for a home loan usually stays the same across all lenders. On the other hand, the time it takes for a lender to approve the home loan differs from lender to lender. When it comes to ANZ, it takes anywhere between 15 to 18 business days to approve a home loan from the day of the application to approval. This timeframe is highly dependent on the credibility and availability of your documentation. You can apply for an ANZ home loan in two ways; a Quick Start home loan application or a full online application.
If you opt for the Quick Start home loan option, you’ll need to fill out a form with basic details. During this stage, you don’t need to add any supporting information. An ANZ representative will then call you within 48 hours. The representative will help take your application forward, including assessing all relevant information, documentation and conducting a credit check.
You can also submit your entire home loan application with ANZ online by filling out a comprehensive form with all the information and documentation needed.
Once ANZ has conducted the preliminary checks, you’ll be informed of the pre-approved amount they’re willing to offer. Based on this amount, you can set a budget for your property search and make sure you stay inside your budget. Pre-approval will last for three months but can be extended by applying with ANZ if you don’t find a property. But it’s best to find a property as soon as possible as ANZ may decide to change the amount if your financial situation changes.
After you find a property and have your offer accepted, ANZ may send an assessor to the property to verify it’s value. If everything is per their terms and conditions, ANZ will finalise your home loan’s approval and release the funds.
Can first home buyers apply for an ING home loan?
First home buyers can apply for an ING home loan, but first, they need to select the most suitable home loan product and calculate the initial deposit on their home loan.
First-time buyers can also use ING’s online tool to estimate the amount they can borrow. ING offers home loan applicants a free property report to look up property value estimates.
First home loan applicants struggling to understand the terms used may consider looking up ING’s first home buyer guide. Once the home buyer is ready to apply for the loan, they can complete an online application or call ING at 1800 100 258 during regular business hours.
How do I apply for Westpac’s first home buyer loan?
If you’re a first home buyer looking to apply for a home loan with Westpac, they offer an online home loan application. They suggest the application can be completed in about 20 minutes. Based on the information you provide, Westpac will advise you the amount you can borrow and the costs associated with any possible home loan.
When applying for a home loan with Westpac, you’re assigned a home finance manager who can address your concerns and provide information. The manager will also offer guidance on any government grants you may be eligible for.
How to apply for ANZ home loan during maternity leave?
Qualifying for an ANZ home loan while you’re on maternity leave may require some research.
Much like other home loan applications, you'll need to be able to show the lenders that you’ll be able to pay the mortgage instalments on time, even during maternity leave, which can improve chances of your home loan being approved. Your chances improve if you have savings, home equity, or if you receive any government-related benefits.
You’ll likely need to provide no less than three payslips you received before the start of your maternity leave and a letter from your employer, with the letter stating the maternity leave terms such as the date on which you’ll return to work and the kind of employment (full-time, part-time, or casual) when you resume.
Your lender will likely consider the tenure of your maternity leave while assessing your loan application. Lenders also prefer if you are paid while on maternity leave; however, you may receive only half your salary, so the lender may not consider your regular income to determine the loan amount.
Can you remove a cosigner from a home loan?
Taking out a home loan is an act of financial responsibility and a cosigner on a home loan shares that responsibility. For this reason, removing a cosigner from a home loan may not be straightforward. Usually, you can add a cosigner, or become a cosigner, when applying for the home loan. In such a circumstance, the lender may ask you to stipulate the conditions for a cosigner release, which are the terms for removing a cosigner from the home loan. For instance, you may agree that you can remove a cosigner once half the loan amount has been repaid.
However, not stipulating such conditions doesn’t mean it’s impossible to remove a cosigner. If the primary home loan applicant has a sufficiently high credit score and has not delayed any repayments, the lender may be willing to remove the cosigner. You should confirm that doing so doesn’t affect the terms of the loan. If the lender doesn’t agree to remove the cosigner, the primary home loan applicant may have to refinance the loan in order to do so. If there were specific reasons for needing a cosigner and those reasons are still valid, then you may have some challenges with refinancing.
How to apply for a home loan pre-approval from St. George?
By applying for a home loan pre-approval, you can establish how much you can afford to borrow and look for houses within that pre-approved budget. Getting home loan pre-approval from St. George is a fairly simple process that can be completed within 15 minutes.
The first step in this process is completing a home loan application. Once that application is submitted, a home loan expert from St. George will contact you to understand your requirements and your current financial position. You could also directly contact a home loan expert at the bank by calling 13 33 30 or by visiting your nearest branch.
Once the application has been processed, the home loan expert will ask for some basic documentation to confirm your borrowing capacity. After this, you should be issued a home loan pre-approval, subject to certain conditions.
Based on your home loan pre-approval from St. George, you can then find a property and make an offer. Your home loan expert will arrange to have the property valued and may request for more documentation, taking your home loan application to the next step.
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.
How to apply for a pre-approval home loan from Bendigo Bank?
Applying for pre-approval on your home loan gives you confidence in your ability to secure finance while looking at potential new homes. You can get a free and personalised pre-approval home loan from Bendigo Bank in just a few minutes, without any credit checks or paperwork.
Bendigo Bank offers pre-approval for home loans that allow you to understand the home loan size you may be able to get before looking for a new home.
With the pre-approval, Bendigo Bank provides an estimate of your borrowing power. This figure incorporates stamp duty, lenders mortgage insurance (LMI) and any first home buyer incentives you may be eligible for. You may also qualify for the First Home Loan Deposit Scheme initiative, depending on your circumstances.
To apply for a pre-approval on your home loan from Bendigo Bank, all you need to do is fill in a smart form. You could also contact the bank directly on 1300 236 344.
How much deposit do I need for a home loan from ANZ?
Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:
- A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
- The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
- If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).
Can I get a home renovation loan with bad credit?
If you're looking for funds to pay for repairs or renovations to your home, but you have a low credit score, you need to carefully consider your options. If you already have a mortgage, a good starting point is to check whether you can redraw money from that. You could also consider applying for a new home loan.
Before taking out a new loan, it’s good to note that lenders are likely to charge higher interest rates on home repair loans for bad credit customers. Alternatively, they may be willing to lend you a smaller amount than a standard loan. You may also face some challenges with getting your home renovation loan application approved. If you do run into trouble, you can speak to your lender and ask whether they would be willing to approve your application if you have a guarantor or co-signer. You should also explain the reasons behind your bad credit rating and the steps that you’re taking to improve it.
Consulting a financial advisor or mortgage broker can help you understand your options and make the right choice.
How do you determine which home loan rates/products I’m shown?
When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.
We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.
What do people do with a Macquarie Bank reverse?
There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:
- To top up superannuation or pension income to pay for monthly bills;
- To consolidate and repay high-interest debt like credit cards or personal loans;
- To fund renovations, repairs or upgrades to their home
- To help your children or grandkids through financial difficulties.
While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.
What are the features of home loans for expats from Westpac?
If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.
The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.
When do mortgage payments start after settlement?
Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.
Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.
Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.
Cash or mortgage – which is more suitable to buy an investment property?
Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.
A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.