How to get a home loan when you're self-employed
Denise Raward
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- Self-employed individuals may be eligible for a home loan in Australia.
- Sole traders, company directors, partners in a business are generally considered self-employed.
- Contractors and freelancers may also be assessed as self-employed.
- Instead of pay slips, lenders verify self-employed income through tax returns, financial statements, and BAS.
- Alt doc home loans may be suitable for self-employed borrowers unable to provide tax returns.
In Australia, being self-employed doesn't prevent you from getting a home loan, but it does mean proving your income a little differently, and, in some cases, completing a few extra steps.
Typically, a prospective borrower's income and ability to repay are assessed using pay slips, something that non-PAYG applicants don't have.
Understanding what lenders look for and what options are available if you're self-employed may help improve your chances of home loan approval.
See also: How to improve your chances of getting a home loan
Can you get a home loan if you're self-employed?
Yes. Most Australian lenders, from big banks to smaller players and non-banks, offer home loans to self-employed borrowers.
Generally, you are considered self-employed if you own or operate a business as a sole trader, company director, partner, or trust entity. Contractors and freelancers may also be assessed as self-employed, depending on their income structure.
The key difference compared with borrowers assessed as employed is that, instead of relying on pay slips, lenders generally want more evidence that your self-employed income is stable and likely to continue.
Lenders will typically assess the financial health of your business, your trading history, your existing debts and savings, and credit score.
See also: How do mortgage lenders assess application
Compare self-employed home loans
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
7.14% p.a. | 7.18% p.a. | $3,374 | Principal & Interest | Variable | $0 | $530 | 70% |
| Promoted | Disclosure | ||||||||||
6.99% p.a. | 7.26% p.a. | $3,323 | Principal & Interest | Variable | $295 | $0 | 85% | |||||||||||||
6.84% p.a. | 7.11% p.a. | $3,273 | Principal & Interest | Variable | $0 | $0 | 80% | |||||||||||||
7.24% p.a. | 7.28% p.a. | $3,407 | Principal & Interest | Variable | $0 | $530 | 80% |
What do lenders look for in self-employed borrowers?
Lenders have different policies, but they typically focus on these key factors:
Consistent income
Home loan lenders want to know whether you can comfortably meet your regular mortgage repayments.
For employed borrowers, a regular pay cycle provides evidence of consistent income.
For self-employed, this generally means demonstrating ongoing income, a profitable business, and sustainable cash flow.
Lenders typically want to see at least two years of self-employed income history, although some may consider one year.
Time in business
Many lenders prefer borrowers who have been operating for at least two full financial years. However, some lenders may consider borrowers with one year of financials, particularly where:
- You have changed your business structure
- Your business operates in a stable industry
- Your business demonstrates strong performance
Credit history
Just like PAYG borrowers, self-employed applicants are assessed on their creditworthiness. Lenders typically review your credit score, existing debts, and repayment history.
A strong credit score can help offset concerns about variable income and improve your chances of loan approval.
See also: How does your credit score affect getting a home loan
Deposit and savings
Lenders generally view larger deposits favourably. A large deposit, 20% or more, reduces the lender's risk, reduces the loan amount, and can help avoid paying lenders mortgage insurance (LMI).
Full doc vs alt doc home loans: Which suits self-employed borrowers?
Home loan options available for self-employed borrowers depend on the documentation that you can provide.
Full doc home loans
A standard or full doc, short for 'full documentation', home loan requires borrowers to verify their income using traditional financial documentation.
Typical full doc home loan requirements include personal tax returns, business tax returns, financial statements, business activity statements (BAS), and notices of assessment.
If you are unable to provide the traditional tax returns required for a standard home loan, you may consider an alt doc mortgage.
Alt doc home loans
Alt doc, short for 'alternative documentation', is a type of home loan that allows eligible self-employed borrowers to verify their income using documents other than tax returns.
Lenders offering alt doc home loans often require that self-employed borrowers have been in business for at least two years.
Some lenders may consider borrowers with one year of ABN registration or less if they can demonstrate substantial industry experience or stable long-term contracting arrangements.
Who are alt doc loans designed for?
Alt doc mortgages are generally aimed at self-employed borrowers whose income is difficult to demonstrate through standard lending requirements, particularly:
Small business owners
Sole traders
Contractors
Freelancers
Gig-economy workers
What documents do you need for an alt doc loan application?
Rather than relying on lodged financials, alt doc lenders may assess alternative evidence of income, such as:
Business Activity Statements (BAS)
Business bank statements
Accountant declarations
GST registration history
ABN registration details
Contracts or invoices
Profit and loss statements
What are the trade-offs of alt doc home loans?
Alt doc loans are a viable option for self-employed borrowers looking into home ownership. However, with greater documentation flexibility comes stricter lending criteria and other trade-offs.
If you're considering an alt doc home loan, you may encounter higher interest rates than full doc options, lower maximum loan-to-value ratios (LVRs), and larger deposit requirements.
And unlike standard mortgages, fewer lenders offer alt doc home loans.
How can self-employed borrowers improve approval chances?
While obtaining a home loan as a self-employed borrower may be more challenging than if you were a traditional PAYG employee, there are several steps that you can take to strengthen your application.
Keep tax returns and financial statements up to date
Lenders generally want the most recent picture of your income and business performance. That said, make sure you lodge tax returns promptly and maintain up-to-date financial records to help streamline the application process.
Separate business and personal finances
Dedicated bank accounts can make it easier for lenders to assess your income and expenses.
Improve credit score
A strong credit score increases your chances of home loan approval. Before applying for an alt doc home loan or any home loan you may be eligible for as a self-employed borrower, pay down personal loans, credit cards, and other liabilities to help improve your borrowing capacity.
Additionally, maintain a strong repayment history as missed repayments can negatively impact your credit profile and raise red flags during assessment.
Build a larger deposit
A larger deposit helps reduce risk for the lender and may therefore improve your approval prospects. It may also open you to more lender choices.
See also: How to save up for a house deposit
Consider seeking specialist advice
A mortgage broker experienced in self-employed lending may be able to identify lenders whose policies suit your circumstances.
Savings.com.au's two cents
Being self-employed doesn't mean you're completely locked out from getting onto the property ladder. Although the steps you need to get onto it may be a bit different.
Many lenders offer the same home loans available for PAYG borrowers to non-PAYG borrowers. The key difference is the documentation you need to provide to prove your financial capability. And if you're still unable to fulfill the required paperwork for a standard mortgage, an alt doc home loan is an option worth exploring.
At the end of the day, whether you receive a regular pay cheque or generate income from a business, one of the important things when financing a home purchase is that you can consistently and comfortably meet your regular repayments.
Compare your options and consider seeking professional advice to see which home loan product suits your circumstances, particularly taking into account the documents you have.
Frequently Asked Questions
Many lenders generally prefer to see two years of self-employed income history. However, some lenders may consider borrowers who've only been self-employed for one year if the business is performing strongly or the borrower has previous experience in the same industry.
Typically, lenders request tax returns, notices of assessment, business financial statements, and BAS.
Alt doc lenders may accept alternative income evidence, in lieu of lodged financials, such as bank statements and accountant declarations.
Not necessarily. If you qualify for a full doc loan, you may access the same rates as PAYG borrowers. Alt doc loans often carry higher rates and fees.
Many lenders accept deposits below the usual 20%, although borrowing above 80% LVR may trigger lenders mortgage insurance (LMI).
Yes. Alt doc home loans can suit contractors, freelancers, sole traders, and other self-employed borrowers whose income may be irregular or difficult to verify through traditional payslips.
Yes. If you're later able to provide more comprehensive proof of income and meet the lender's requirements, you may be able to refinance to a standard home loan. This could give you access to a wider range of loan products and potentially a lower interest rate.