How to get a home loan while self-employed

It used to be that when applying for a home loan, lenders would look poorly on applicants that didn’t have a steady full-time job and a regular salary going back many years. Nowadays, Australian lenders have shifted how they view borrowers, due, in part, to the increase in self-employed borrowers.

Home loan requirements have thankfully changed, making it easier for self-employed Australians to get a foot on the property ladder. This includes additional options for proving your income, especially if you’re a small business owner or self-employed, and don’t have payslips from an employer.

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When you apply for a home loan, you will need to show the lender proof of your financial status, including your income. For many people, this proof is available in the form of Pay As You Go (PAYG) payslips, but sole traders, freelancers and other people who run their own business may not have the same level of documentation. It’s for this reason that financial institutions may require self-employed people to provide other forms of proof, limit the types of loans available to them and apply stricter lending criteria than required for other borrowers.

Yes, self-employed individuals can get a home loan. As long as you can demonstrate that you’re financially capable of making repayments, there’s a good chance of getting your loan approved. Preparing the right documents, such as proof of income and financial stability, is key to a successful application.

However, the lending criteria for self-employed borrowers can be more stringent than for those with traditional employment. You may need to put in extra effort to meet the requirements and strengthen your application.

If you’ve been self-employed for over a year, you might qualify for an ‘alt-doc’ or ‘low-doc’ home loan, which allows you to submit fewer or alternative documents.

This home loan type was made specifically to help those with less documentation, such as a pay slip or evidence of a fixed income entering a bank account. Alt-doc or low-doc home loans may be a competitive choice to consider if you are self-employed.

The table below offers a glance at the various documents you may need to present when applying for different home loans. Ideally, you would compare various lenders’ home loan requirements and opt for a lender offering a home loan that you can easily fulfil the application requirements.

You can prove that you’re steadily self-employed by submitting your business activity statements (BAS) or similar financial information.

However, a low-doc home loan usually comes with some unique terms:

• You may not be able to borrow as much as a ‘full doc’ home loan.
• You'll probably have to pay a higher initial deposit.
• Your loan interest rate will typically be higher.

If you’re self-employed, you can still apply for a traditional home loan, as long as you have the necessary documents required by lenders. Keeping track of your earnings is always a priority, but it’s crucial when applying for a home loan as a self-employed individual.

Traditional home loans are often referred to as a full-doc home loan, due to the number of documents needed to apply.

These documents may include:

• Tax returns for the past two years
• Profit-and-loss statements
• Bank statements

However, since you’ll need to submit tax returns for the past two years, you may not qualify if you began self-employment less than two years ago.

If you are not sure if you would qualify for a full-doc home loan, it may be worth speaking with a mortgage broker for more specific information for your financial situation.

Home loan applications are complicated enough without mentioning that lenders consider self-employed applicants more likely to face financial issues, hindering their ability to repay a home loan. At the same time, getting your home loan application rejected can negatively affect your credit score and, as a result, your chances of approval with a different lender.

To improve your chances of getting approved the first time, here are a few steps to consider:

1. Compare lenders’ requirements

To increase your chances of getting your application approved the first time around, you should carefully consider your circumstances as well as different lenders’ loan requirements. To assist with this, you could compare home loan offers online to see what the different requirements are across lenders.

2. Document your business’s success and earnings

A good first step towards getting a home loan if self-employed can be making sure you are documenting your business’s continued success and earnings. This will be helpful as it supports you as a self-employed borrower to prove your income and business stability.

It’s also worth checking the state of your finances before applying for a home loan. Many self-employed Australians tie their finances up in their businesses, often at the advice of their accountants. While this can be effective for managing cashflow and/or minimising tax, it can sometimes distort the state of your finances and make it harder for a bank or mortgage lender to accurately assess your risk and borrowing power.

You may need to look for a lender whose staff can efficiently process your application, even if it’s unlike what they’re used to dealing with. Keep in mind that this may take a little more time to process, so you may not be able to benefit from fast-track mortgage assessment services offered by some lenders.

3. Highlight your work experience

If you’ve previously worked in the same business area as an employee, be sure to include this information. From a lender’s perspective, this suggests you can return to regular employment if you don’t succeed with self-employment.

4. Boost your savings for a larger deposit

Consider whether you can pay a larger deposit, as this reduces the lender’s risk and strengthens your application. A higher deposit can also help when applying for a low-doc home loan, although it’s important to ensure you can afford a potentially higher interest rate.

5. Check and resolve credit issues

Review your credit rating for any outstanding issues and try to resolve them before applying. Clearing debts or addressing inaccuracies can significantly improve your chances of approval.

Do you need more help?

Finding and applying for a home loan can sometimes be more complex as a self-employed borrower than for other applicants. One way to make this easier could be to get help from a mortgage broker.

These home loan experts can assess your needs and financial situation and match you with lenders that may offer what you’re looking for. Additionally, mortgage brokers can help manage the paperwork and liaise with the lender on your behalf, hopefully resulting in a quicker and smoother home loan application.