Running your own business can a rewarding (and profitable) way to make a living for many Australians, and being self-employed is now more popular than ever.
There are over 1.6 million “self-employed” businesses in Australia according to data from 2024 , with one report last year suggesting self-employment now constitutes over 15% of total employment across the country.
Yet despite the popularity and numerous advantages of working for yourself, getting a home loan isn’t necessarily always straight forward.
Many self-employed individuals can initially struggle to get a home loan when they want to purchase property, as their income stream doesn’t always meet the standard lending requirements for many lenders.
However, with careful planning and the right information, there are many options for self-employed individuals and small business owners to secure property lending.
Here’s what you need to know to access them.
Be Prepared
Getting a home loan when self-employed is more complex than if you are employed and have a regular, guaranteed income, but most lenders have specific product offerings designed to assist these individuals to invest in property if you know where to look.
Self-employed home loans are designed for borrowers who run their own business or earn income outside of traditional PAYG employment. These loans cater to sole traders, contractors, freelancers, and company directors who may not have regular payslips but can demonstrate income through tax returns, business bank statements or alternative documentation.
Being prepared with the appropriate documentation is the first step, so make sure you can produce the following (ideally for the last two years) before proceeding:
- Personal and business tax returns
- ATO notices of assessment
- Business financial statements – profit and loss statements and balance sheets
It’s worth noting that figures from the latest financial year are not necessarily required. However, if your latest financial year shows a business that is going from strength to strength, it may well be advantageous to include these figures.
Latest financial year figures may even be sufficient on their own, although lenders will also consider how long your ABN has been registered (a minimum of two years is typically required).
Checks will also be made on any defaults, missed payments or excessive number of credit enquiries, so having a clean personal and business credit history is crucial.
Calculating your self-employed income
As with any loan agreement, satisfying the lender that you are able to pay back the money you are borrowing is critical. Knowing what financial institutions are looking for to assure them of this is therefore pretty useful information to have.
As indicated above, the most common method of assessing your income is to look at the last two years of your financial history to establish the stability of your business.
Lenders will be looking for a reliable income stream to demonstrate you can meet proposed loan
repayments. The income streams they will consider include:
- Any salary you draw from your business
- Business profitability (how much your business makes in profit as opposed to revenue)
Many lenders tend to use conservative methods to calculate your income variance, which is the degree of fluctuation in a borrowers’ income over a specific period.
A few lenders may take a more flexible approach and may only review your latest year’s figures. Professionals including doctors, lawyers, accountants and engineers will have more lender options using this approach, as they are often seen by lenders as highly attractive customers due to their high earning potential.
One thing to consider when preparing a self-employed home loan application is including “add backs” such as depreciation and one-off business expenses, as these can add to your profitability history and strengthen your income position..
Finally, having a larger deposit is another way of reassuring the lender of your ‘loan worthiness’ and reducing the risk in their eyes. Although not essential, if you can find a deposit of 20% or more, you can also avoid paying Lenders Mortgage Insurance (LMI) on the loan.
Find a good mortgage broker
As is clear from above, there are a lot more things to consider when applying for a home loan as a small business owner or self-employed individual.
While these obstacles are not insurmountable on your own, finding a mortgage broker who is experienced in helping this section of borrowers can save a lot of time and stress.
Working with an experienced mortgage broker who understands the different lending policies
and documentation requirements for self-employed applicants can be a big help. They can prepare your application, help you choose the right lender, and navigate the process successfully.
A good broker will find the lender that best aligns with your business set-up and performance.
If you have a complex business set up, such as multiple entities including companies and trusts, choose a broker who can understand your financial statements, the connection between entities and what questions lenders will want answered.
It’s also worth noting that as long as you meet lender requirements, you may also be able to apply for funding to complete that renovation project or refinancing your existing home loan to save money – just as you would if you were a PAYG employee.
Securing a home loan when self-employed doesn’t have to be a drama.
If you bear in mind throughout the process that lenders are looking at the viability of your business and the industry it operates within. They want to ensure your business is stable and has a good chance of long-term success, which ultimately means you can make your repayments.
Being prepared, having a good accountant and utilising an experienced mortgage broker are three ways of maximising your ability to reassure the lender of this, and securing that property all those long hours deserve.
