Self employed home loan

What do lenders think?

Lenders have the view that self employed borrowers represent a higher risk because their income is not as stable. This is true in some circumstances, however there are also hundreds of thousands of businesses Australia wide that have been trading profitably for years. It just isn’t fair to tar them all with the same brush!

Critically most lenders believe that by looking at your past tax returns they can predict how stable your business will be in the future. Banks and non-bank lenders alike tend to be very wary if you have an income that has increased or decreased by a large amount in the last two years.

Some industries such as construction are viewed less favourably then others such as accounting firms simply because banks have seen higher levels of default over the years from particular industries so tend to be more conservative when lending to them. At one time a leading mortgage insurer even refused to approve low doc loans for builders!

Which lenders can help?

For this type of situation banks are more helpful then securitised non-bank lenders. Non conforming non-bank lenders may also be able to help. Talk to us to see which banks will see your tax returns in the best light.

How will lenders view my tax returns?

When a credit officer working for a bank receives your tax returns on his desk he will check to make sure they are signed and certified and backed up by notices of assessment. This is a simple fraud check to make sure that these are the tax returns you lodged with the ATO.

Next he will usually look at the last two years taxable incomes and add back any unusual expenses such as one off losses. Did you know some lenders will add back extra super contributions and even depreciation?

This is then where the banks really show a large difference in the way they read your tax returns. One lender may use the lowest of the income figures for the last two years. Another may use the most recent year’s income as shown on your tax return. Another still may even average the two years income or take 120% of the lowest years income. As you can imagine this makes a big difference to your loan application!

Importantly, every lender has their own opinion on how to read your tax returns. We specialise in finding the one that will look at yours most favourably.

How long do I need to be self employed for?

If you have been self employed less than one year there aren’t many options. One of our lenders can approve loans for people who have been self employed for between one and two years as long as they have been in the same line of work for some time and have at least one years financials for your new business. A good example of someone we can help would be a plumber with his own business that has been operating one year who was previously employed as a plumber for five years.

The majority of lenders require you to be self employed for at least two to three years however some can consider people who have been self employed for only one year.

Low Doc options

Most lenders these days will allow you to not submit tax returns or financials if you sign a declaration confirming your income. The lender can then assess your loan using the declared income.

Although most lenders do not charge a higher rate for low doc loans they may charge your Lenders Mortgage Insurance (LMI) as a one off fee when the loan is set up. This fee is usually charged for loans over 60% of the property value. You can find out more in our low doc home loans section.

Company home loans

If you are borrowing in a company, trust or partnership then you may get referred to business banking. Avoid this at all costs! If you have a residential property as security then why should you pay a higher rate and higher fees just because you are borrowing in a company? Some of our lenders will approve company home loans and trust home loans at standard residential rates. You may have to pay slightly higher fees so that the lender can draw up more extensive loan documents which encompass a personal guarantee from the directors.

Which loan types are available?

All loan types: Professional packages, basic loans, lines of credit, fixed rates.

How much can I borrow?

You can borrow up to 95% of the property value.

What can I use the loan for?

Home / domestic use, investing, purchases, refinances and construction are all acceptable loan purposes. Business purposes are acceptable for some loans types & lenders.

Who this loan is for?

Finance is available for self employed borrowers operating either as a sole trader or through a partnership, company or trust. Investors operating through a company or trust also fall into this category.

Who this loan is not for?

Normally employed applicants.

Discounts

Professional package and basic loan discounts are available.

Loan features

All loan features: Interest only, fixed rate, line of credit, 100% offset, redraw, extra repayments.

Notes / Apply for a home loan

We only recommend that you apply for a home or investment loan when you feel your business is stable. This is something that both us and the bank cannot assess, you would need to determine this for yourself.

Talk to us to obtain a quote from a lender that will be best for your situation.