Last Updated: 21st January, 2018

How To Beat The Banks As A Self-employed Borrower

Published by Otto Dargan on April 24, 2015

Are you self-employed and looking to buy a property? Did you know that some lenders can be tough when it comes to self-employed borrowers?

The most recent data from the Australian Bureau of Statistics found that around 17.2% of the Australian workers are self-employed meaning thousands of people get knocked back for a home loan every year.

But why?

Well, it has a lot to do with how long you’ve been self-employed and the type of evidence you can provide as proof of your income.

Ultimately, knowing which lender will take a common sense approach to your situation is key.

How long have you been self employed?

Most lenders like to see that you’ve been self employed for at least two years so they’re confident that your business is steady and you can make your repayments without any problems.

If you’ve been employed for less than two years then it doesn’t necessarily spell the end for you as a home owner. There are some lenders that take a common sense approach when evaluating your application.

For example, if you’re an electrician who is subcontracting but you were employed full-time in the same line of work for five years before that, your application could still be considered.

The reason is that you’re essentially doing the same work. It’s just the way in which you earn an income that has changed.

How will lenders calculate your income?

Lenders tend to predict your income by looking at your past tax returns. They may predict your income by:

  • Using the lowest income figure of the last two years.
  • Using the most recent year’s income as shown in the tax return.
  • Using the average of the two years income or taking 120% of the lowest year’s income, whichever is lower.

It should be noted that because the calculation methods are not the same, different lenders will come to separate conclusions about your income. The trick is to find a lender that will consider your highest possible income.

What documents do you need?

If you’ve been self-employed for the last two years then you can apply for a full doc loan which means you’ll be treated the same as any other borrower and can take advantage of the same great home loan deals.

To qualify, you’ll need to provide:

  • Your last two years’ financial statements (profit & loss and balance sheet).
  • Your last two years’ business tax returns.
  • Your last two years’ personal tax returns.
  • Your last two years’ notices of assessment.

With less than two years self-employment history, you may have to apply for a low doc loan. This type of loan allows a lender to approve your loan with alternative income evidence such as:

It should be noted that every loan application is unique in its own way so it’s best to contact a specialist mortgage broker. They can match you with the right lender.

If you’re self employed, need a home loan and don’t know where to turn, call us on 1300 889 743 or complete our free assessment form.

We’re experts in working with Australians who are self-employed and you’ll even get the same great interest rates as any other borrower!