Finance for Self-Employed Clients

For self-employed Australians, homeownership can seem more complex compared to salaried buyers. This is because it can be more difficult to prove steady income and meet lender requirements when you are self-employed.

But, with planning and preparation, securing a home loan is achievable. Several lenders offer home loan products specifically tailored to self-employed borrowers. These loans look at your average income over a period, rather than just your most recent tax return. A self-employed individual is generally considered someone who receives most of their income from a business where they are the sole trader or they have control of the company.

Required documentation

To qualify for most self-employed mortgages, you’ll need to provide some information that shows your income. This can be through documents like:

  • Your last two years individual and business tax returns.
  • Your Australian business number (ABN) to verify how long you’ve been trading.
  • Financial statements like balance sheets or profit and loss statements.
 Low-doc loans

There are exceptions for proof of income, like borrowers who have been trading for less than 12 months. In this case, it’s best to speak to a mortgage broker to discuss your circumstances.

Your mortgage broker might suggest a low-doc home loan. This differs between lenders but, generally, a low-doc loan requires the borrower to sign a declaration about their earnings. In doing so, you can provide different types of evidence of your income than the standard self-employed home loan.

What do lenders look for in a self-employed home loan

Like all mortgage applications, the purpose of the process is to prove to your lender that you have the means to repay the home loan and that you have a demonstrated history of managing debt. To check this, they look for:

  • Stable income: This will be assessed by your tax returns or business financials.
  • Debt-to-income ratio (DTI): Your lender needs to see what portion of your income is currently dedicated to paying off debt. The lower your DTI, the better as this shows responsible financial management.
  • Credit history: A clean credit history with high scores indicates responsible credit usage.
  • Business track record: As a sole trader, your business financials are also proof of your financial management skills.
What to do if you have only recently become self-employed

If you are applying for a home loan but do not have the required two years’ worth of proof of income, you could consider a low-doc home loan as discussed above, but there are also other alternatives available to you, such as:

  • Proof of experience: Some lenders will require that you have worked in the industry for more than two years, even if you have not been self-employed for that time. So, it is helpful to have old payslips from previous employers that can prove your experience in the field.
  • Alternative mortgage types: Consider applying for a guarantor loan where a family member secures your home loan.
Tips for applying for a home loan when you’re self-employed
  • Maintain a good credit score: Regularly check your credit score and address any errors quickly.
  • Keep accurate records: To secure your home loan you will need to provide proof of income. It is helpful to have clear and accurate records to provide to possible lenders. This includes your up-to-date tax returns, business financials and other related documents.
  • Increase your deposit: Saving a larger deposit reduces the loan amount you need to borrow and demonstrates your commitment and financial responsibility.
  • Work with a mortgage broker: Consulting a mortgage broker with expertise in securing loans for self-employed buyers will help. They can provide advice on your specific situation and help you navigate the application process.
Securing finance as a self-employed borrower

Self-employed borrowers can achieve homeownership. With clear records and by using a good mortgage broker to assist, you can navigate the process of proving your income and demonstrating financial responsibility easily.