Securing a Self-Employed Home Loan
How much can you borrow?
Requirements for a Self-Employed Home Loan:
- Two Years of Financial Records: Banks typically require two years of financial documentation to ensure you can reliably make repayments.
- Less Than Two Years' Financials: For businesses under two years old, additional documentation, such as proof of industry experience, may be necessary.
How do banks calculate my income when self-employed?
Understanding Add Back Expenses
These might include superannuation contributions, interest payments, and depreciation on assets.
How Lenders Assess Self-Employed Income
One of the biggest differences between self-employed and PAYG borrowers is how lenders verify income. Rather than relying on payslips, lenders will typically assess your borrowing capacity using one or two years of personal and business tax returns, along with your ATO Notice of Assessment. Some lenders will also accept BAS statements as supporting evidence of cash flow.
The key figure lenders focus on is your taxable income – which, as many business owners know, is often lower than what your business actually generates. This is where working with a broker matters. We know which lenders use add-backs (expenses like depreciation, one-off costs, and superannuation contributions) to calculate a higher assessable income, giving you access to a larger loan than a standard calculation would allow.
Low Doc Home Loans: An Option Worth Knowing
If you have been self-employed for less than two years or your tax returns do not reflect your current earning capacity, a low documentation (low doc) home loan may be worth considering. These loans require less paperwork to verify income – often just an accountant’s letter or a signed income declaration – but typically come with a slightly higher interest rate or a larger required deposit.
We work with lenders who offer competitive low doc products and can help you weigh up whether a low doc loan or waiting until you have two full years of returns gives you the better overall outcome.
What Documents Will You Need?
While requirements vary between lenders, most self-employed applicants should be prepared to provide:
- Last one to two years of personal tax returns and ATO Notices of Assessment
- Last one to two years of business tax returns (if applicable to your structure)
- Recent BAS statements (2-4 quarters)
- An accountant’s letter confirming your self-employment status, ability to repay the loan instalment and/or income confirmation
- Proof of ABN registration (usually a minimum of two years active)
Having these documents ready before you apply speeds up the approval process considerably.
Common Pitfalls to Avoid
The most common issue we see is self-employed borrowers applying directly with a bank without knowing which lender’s policy suits their income structure. A lender that is inflexible with add-backs or that penalises variable income can result in a much lower borrowing limit – or a decline – that leaves a mark on your credit file.
Before you apply anywhere, speak with us first. We can match your situation to the right lender from the start.
Enhancing your Loan Eligibility:
- Realistic Financial Planning: Understand your financial capacity and consider all potential expenses of home ownership.
- Up-to-date Financials: Ensure your financial records, including tax returns and BAS statements, are current.
- Organised Paperwork: Keep all relevant financial documents readily available, including tax returns and bank statements.
- Identify Add Back Expenses: Document any business expenses that could increase your assessable income.
- Savvy Business Income Management: Display financial acumen by efficiently managing your business income.
- Future Planning: Conduct a business forecast to assess your future business and personal financial landscape.
- At Providence Finance Hub, we aim to make securing a home loan for self-employed individuals straightforward and transparent. We provide clear guidance to navigate the complexities of the lending process.
