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Home loans for self-employed borrowers
Sole traders and other self-employed borrowers can often qualify for the same home loan as a PAYG borrower. But if you lack the evidence of your business income you'll need a low doc loan.
Just because you're a self-employed borrower doesn't mean you can't get a competitive home loan. You'll just need to provide more evidence to the lender to establish your income, such as tax returns and business activity statements.
If this is difficult for you to establish (if you've recently started your business, for example), then you may have to look at another option: using an alternative or low doc loan.
Explaining mortgage terms: Self-employed, full doc and low doc
Before we dig into the topic of home loans for self-employed borrowers it's a good idea to explain some confusing terms.
Self-employed borrower. If you run your own business as a sole trader, work as a freelancer or have multiple jobs, you are self-employed. In other words, you receive irregular income from a business you run or through work you do for multiple clients. You do not earn a stable, steady monthly salary.
PAYG borrower. PAYG means pay as you go. This means you work for a company that pays you a regular salary. Your employer deducts your monthly tax obligations automatically. This is the opposite of a self-employed borrower. PAYG borrowers have an easier time getting a home loan application approved because they have regular pay slips to establish their income.
Full doc loan. A full doc, or full documentation loan, is the standard mortgage a PAYG borrower would apply for. If self-employed borrowers have 2 years of tax returns and other documentation, they may qualify for a full doc loan too. These loans usually have the lowest interest rates.
Low or alt doc loan. For borrowers who don't have enough paperwork to establish their income for a full doc loan, alt or low documentation loans exist as an alternative. Lenders offering these loans may accept just 1 year of tax returns, a business activity statement for the last year, or a letter from an accountant.
"If you operate your business as a sole trader, you are the only owner and you control and manage the business. You are legally responsible for all aspects of the business. Debts and losses can't be shared with other individuals."
The term self-employed is a bit broader, and can include freelancers or people who work for multiple clients. In home loan terms, a sole trader and a self-employed borrower face the same challenge when applying for finance: Do you have the documents to prove your income?
Can I get a low doc or full doc home loan?
The answer really comes down to what kind of documentation you can use to establish your income. While this varies from lender to lender, here's a basic outline of the different home loan paperwork required for full or low doc borrowers.
Full doc requirements
Business tax returns (2 years)
Personal tax returns (2 years)
Notice of tax assessment from the ATO
Bank statements for your business
Low doc requirements
Proof of your ABN registration
Proof of your GST registration
Bank or business activity statements (usually 6-12 months' worth)
Older tax returns
An accountant's letter
Interim financial statements
Keep in mind that every lender has its own specific criteria, especially when it comes to self-employed borrowers. It's often a good idea to check a lender's requirements before you start getting a full application together.
Before you even start looking at loans as a self-employed borrower, consider speaking with a mortgage broker. A qualified professional can guide you through the mortgage selection process and will have a good idea of what loan type you need and the types of lenders that can help you.
Finder survey: What do Australians of different ages think are the most important features when considering a home loan?
Response
55-64 yrs
45-54 yrs
35-44 yrs
Other
0.58%
1.45%
0.39%
Source: Finder survey by Pure Profile of 1112 Australians, December 2023
What loans are available to self-employed borrowers?
Sole traders and other self-employed borrowers can access the same type of loans as full doc borrowers. And there is often a similar loan for alt or low doc borrowers too (although rates will be higher). Common home loan types are:
Variable rate loans: Flexible loans that are attached to a variable interest rate.
Fixed rate loans: Loans with fixed interest rates for a set period of time, usually 1-5 years.
Construction loans: Designed to help you minimise your repayments when building a property.
Lines of credit: Also known as a home equity loan, these allow you to borrow money using the equity in your property.
Am I better off with a low doc home loan?
If you have enough documentation to get a full doc loan, this will save you money because the interest rate will be lower. But if a low doc loan is your only option that's okay. Just be aware of the potential disadvantages before you sign a home loan contract, and weigh these against the benefits.
Disadvantages
Higher interest rate. Many lenders view low doc loans as being riskier than fully verified loans. For this reason, they charge higher interest rates than they do with regular full doc mortgages.
Lower loan to value ratio (LVR). With full doc loans many lenders will let you borrow 90% or even 95% of your property's value. But low doc loans usually have lower LVRs, meaning you need a bigger deposit and can borrow less. This means low doc borrowers usually need at least a 20% deposit so they can borrow the remaining 80%. But there are some specialist lenders that might lend you 95% as a low doc borrower. Expect higher interest rates in this case.
Fewer lender options. Not every bank or lending institution will lend to low doc borrowers. This limits your options and makes it more difficult to negotiate for better deals on interest rates.
Benefits
Easier application process. Low doc loans require significantly less documentation. This makes the application process easier. You'll save time tracking down your financial statements, tax returns, business activity statements and other verification from your accountant. This lets you get your application submitted much faster.
Convert to full doc later. Many lenders will allow low doc borrowers to convert their self-employed home loan over to a full doc loan after a period of time without asking for financial verification. In most cases, this is after 2 or 3 years and only if the loan repayments have been made on time throughout that period. Converting the loan over to full doc can often mean a slight reduction in interest rate.
What documents do self-employed borrowers need
We covered this in brief above, but here's a more detailed list of the home loan documents lenders will ask you for. But it does vary widely by lender.
The level of documentation you need to submit with an application for a self-employed home loan can vary widely between different lenders. However, here's a guide to help you work out what you might need:
Income verification. Big banks will ask that self-employed borrowers provide 2 full years' worth of financial statements, including tax returns, profit and loss statements and often the last 2 or 3 business activity statements as well. If you have other income such as investment income, you may also be asked to provide this. However, there are low doc lenders available that may only ask for your last 3 or 4 business activity statements and little else. Some lenders are happy for you to self-certify your income. This is where you sign a certification that you do earn sufficient income to comfortably afford the repayments on the loan amount you're applying for.
Asset verification. When banks consider low doc home loan applications, they do assess what level of equity and assets you have available. For this reason, some lenders may ask you to provide copies of your council rates notice, showing a capital value for your property. You may also be required to show bank statements to verify savings and copies of any other investments you might hold.
Credit history verification. Some lenders will ask to see the past 3 months of statements for your credit cards, transaction accounts and statements showing timely mortgage repayments. This gives them an idea of how much money is flowing through your accounts and how you're handling your financial obligations as a self-employed borrower.
Contract of Sale. If you're purchasing a home, you will need to provide a copy of a signed, fully executed Contract of Sale for the property.
Refinancing. If you are refinancing an existing mortgage over to a new lender, you may be asked for 12 months' worth of home loan statements to show that you're meeting your payment obligations. If you're consolidating other debts into your mortgage, such as personal loans or credit cards, you'll need to include statements for these too.
How to get your low doc home loan approved
Perhaps the biggest key to getting any home loan approved is to find the right lender for your specific circumstances. Every lender has different lending policies and some are more open to receiving low doc loan applications than others. This means you risk having your application declined if you approach a bank that won't be lenient with a self-employed borrower.
Another consideration for self-employed borrowers is that one of the biggest problems they face when applying for a home loan is that their accountant is often too good. Lenders assess how much you can borrow based on your taxable income figure and little else. While a good accountant might help you pay less in tax, this could have a negative effect by reducing how much you're able to borrow.
If you really want to improve your chances of being approved for a self-employed low doc loan, you might want to consider talking to a mortgage broker about your options. This way, you'll have a far better chance of approaching a lender that will welcome your application and have lending policies in place that are more likely to suit the level of documentation you're able to provide.
More questions about home loans for self-employed borrowers
The majority of low doc lenders will ask that your ABN has been registered for at least 2 years. They may also require that you're registered for GST. Of course, there are still some lenders around that will accept applications from self-employed people who have only been in business for between 1 and 2 years. The bank will generally want to see records from your accountant outlining your income and expenses, and they may want to see evidence of your income prior to starting your new business.
There aren't as many lenders around that will approve a self-employed home loan application if you've been in business for less than 12 months, but it's not impossible to get a home loan. For example, if you've been self-employed as a sub-contractor electrician, but you were employed in the same line of work for someone else for 5 years before that, you could still be considered simply because you're still doing the same work. It may also help you gain loan approval if you're applying for the loan together with a PAYG regular income earner.
When you provide a full set of financial documents to your lender, it doesn't just look at the most recent years' taxable income. Most will add together 2 years' income and then average them out to give them a figure to work on. This can often reduce your actual income, which also reduces the amount you can borrow. Other lenders may decide to take the lower figure of the 2 years and run with this.
Of course, there are some lenders that will actively try to add back some of the write-offs shown in your tax returns onto your taxable income figure. This might include any depreciation on business vehicles or investment properties and even any additional superannuation contributions you made throughout those years. It might also include adding back any once-off losses noted.
Most lenders limit the amount that you're able to borrow based on the property value and the amount of income they're able to verify for you. In most cases, low doc applications are limited to 60% of the property value, although many lenders will increase this up to 80% with a Lender's Mortgage Insurance charge added for any LVR over 60%.
You are able to use a low doc home loan for personal use, such as buying a home to live in, constructing a new home, or refinancing an existing mortgage from another lender. You're also able to use it for investment or business use.
As an authority on all things personal finance, Sarah Megginson is passionate about helping you save money and make money. She is an editor and money expert with 20 years’ experience and an extensive background in property and finance journalism. Sarah holds ASIC RG146-compliant Tier 1 Generic Knowledge certification, and she's a regular media commentator, appearing weekly on TV (Sunrise, Daily, Studio 10, nightly news), radio (KIIS FM, Triple M, 3AW, 2GB, 6PR) and in digital and print media.
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What about Sole Traders who don’t have ABNs but do have Tax returns for the previous two years? Also, is it possible to get a loan if you have 50% LVR and the loan is less than 100K? I also have a very high credit ranking.
If you only have limited documents such as your tax returns for the previous two years, there is always the option of speaking to a home loan broker. They will be able to help you further in narrowing down a suitable home loan option.
You can typically borrow 50% LVR with a loan amount less than $100,000 but you would need to do some research and see which lenders offer this option. Most lenders start their loan amounts from about $50,000.
You’ll need to provide proof of your income, assets and credit history. These could things like tax returns that you’ve completed overseas, any documents confirming your title for your assets and a credit report from a country that you’ve conducted in.
Yes, there are few banks who may be able to help. You may want to consider the big four, along with second tier lenders such as St.George, Bankwest, Citibank etc.
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We covered this in brief above, but here's a more detailed list of the home loan documents lenders will ask you for. But it does vary widely by lender.
What about Sole Traders who don’t have ABNs but do have Tax returns for the previous two years? Also, is it possible to get a loan if you have 50% LVR and the loan is less than 100K? I also have a very high credit ranking.
Hi Liz,
Thanks for your question.
If you only have limited documents such as your tax returns for the previous two years, there is always the option of speaking to a home loan broker. They will be able to help you further in narrowing down a suitable home loan option.
You can typically borrow 50% LVR with a loan amount less than $100,000 but you would need to do some research and see which lenders offer this option. Most lenders start their loan amounts from about $50,000.
Cheers,
Shirley
I am an Investor and not working for a company.
I would like to know what documents i need to provide in order to get a low-doc home loan?
I am an Australian and based overseas, meaning i earn income from my personal investments overseas and pay taxes overseas.
Thanks.
Hi Andrew,
Thanks for your question.
You’ll need to provide proof of your income, assets and credit history. These could things like tax returns that you’ve completed overseas, any documents confirming your title for your assets and a credit report from a country that you’ve conducted in.
Speaking to a mortgage broker may be best in this case.
Cheers,
Shirley
Is there any lenders who let you borrow when self employed and only owning abn for a year
Hi Kylie,
Yes, there are few banks who may be able to help. You may want to consider the big four, along with second tier lenders such as St.George, Bankwest, Citibank etc.
Cheers,
Shirley