The short version
- Self-employed borrowers need to prove income differently, usually with two years of tax returns.
- Low doc loans accept other evidence, at a higher rate.
- A broker who knows self-employed lending can help.
Home loans when you're self-employed
Self-employed people can get a home loan, but the process takes more paperwork. Business owners, freelancers and contractors have income that can rise and fall with the seasons, so lenders look harder at whether it's steady. Some lenders are more flexible about this than others.
What lenders look for
- Usually at least two years in business, so there are tax returns to show your income. Under a year narrows your choice a lot.
- Income that's steady or growing over that time.
- Experience in your field, such as working as a plumber before starting a plumbing business.
- A deposit and money for buying costs, plus savings beyond that.
Documents to have ready
- Personal and business tax returns, usually for the last two years.
- Financial statements, such as profit and loss and a balance sheet.
- Business activity statements (BAS), your ABN and GST registration.
- Details of your debts, business and personal, and what you own.
Why your tax return matters
Claiming lots of expenses can make your taxable income look lower than what you really earn, which can limit how much you can borrow. An accountant can help put your documents together.
Full doc or low doc
With two years of tax returns you can usually apply for a standard, full doc loan at standard rates. Each lender works out your income from your returns a little differently, so results can vary.
If you can't show that yet, a low doc or alt doc loan lets you prove income another way, such as with BAS statements, business bank statements or a letter from your accountant. These loans usually have higher rates and need a bigger deposit, and you may pay lenders mortgage insurance. Once you have two years of returns, look at refinancing to a standard loan.
Pros
- Many lenders lend to self-employed people at standard rates with two years of returns.
- Low doc options if your business is newer.
- You can refinance to a standard loan once your returns are in.
Cons
- More paperwork than for a salaried borrower.
- Low doc loans cost more and need a bigger deposit.
- Big business deductions can lower the income lenders count.
Making your application stronger
- Save a bigger deposit, which widens your choice of lender.
- Pay down debts and keep business and personal spending separate.
- Keep an emergency fund apart from your deposit.
- Talk to a mortgage broker, who will know which lenders work with self-employed people.
- If you're close to two years in business, waiting a little can open up more lenders.
Alternatives
- Waiting until you have two years of tax returns, to get standard rates.
- A guarantor, to strengthen your application.
- A mortgage broker, who can match you with lenders that suit your situation.
What to compare
Start with the rate for your situation: the rate a lender offers depends on whether you'll live in the home or rent it out, how you repay, and the size of your deposit. The comparison above picks each lender's rate for your choices.
Then look past the rate.
- Fees: upfront fees, and annual package fees that often come with an offset account.
- Features: an offset account, redraw, extra repayments and the option to split the loan between fixed and variable.
- The comparison rate, which adds standard fees to the rate for an example loan of $150,000 over 25 years.
- Any cashback, but only after the rate and fees, since a higher rate can cost far more over the life of the loan.