Home loans for business owners and the self-employed
Self-employed Australians - including sole traders, company directors, contractors, and freelancers - often find the home loan process more complex than their PAYG-employed counterparts. This is because lenders need to assess income that is more variable, and where the documentation doesn't take the neat form of payslips and an annual PAYG summary.
However, being self-employed absolutely does not mean you can't get a competitive home loan. The key is knowing which lenders are well-suited to self-employed borrowers, how to document your income effectively, and how to structure your application to give yourself the best chance of approval. This is exactly where our expertise adds value.
Standard (full-doc) self-employed loans
If you've been self-employed for 2 or more years and have up-to-date tax returns, you may qualify for a standard home loan on the same terms as a PAYG employee. Lenders will assess your income using your last 2 years of tax returns and, in many cases, your business financial statements. They typically average your income over two years (or use the lower of the two years) to arrive at an assessable figure.
Key documentation for a standard self-employed application typically includes:
- Last 2 years of personal tax returns and ATO Notices of Assessment
- Last 2 years of business tax returns (if applicable to your structure)
- Last 2 years of business financial statements (profit and loss, balance sheet)
- Most recent 3-6 months of business and personal bank statements
- ABN registration details (minimum 2 years registered)
- GST registration details if your business turnover is above the GST threshold
Low-doc loans
Low-documentation (low-doc) loans are designed for self-employed borrowers who have difficulty providing the full income documentation required for a standard loan - for example, if tax returns are not up to date, or if your assessable taxable income does not reflect your actual business income due to legitimate tax minimisation strategies.
With a low-doc loan, you can declare your income and support it with alternative documentation rather than tax returns. The most common forms of income verification for low-doc loans include:
- Business Activity Statements (BAS): Typically the last 4-8 quarters of BAS lodged with the ATO, which demonstrate your business's turnover.
- Business bank statements: 6-12 months of business account statements showing consistent revenue deposits.
- Accountant's letter: A letter from your registered accountant confirming your income and self-employment status.
- Self-declaration: Some lenders accept a signed income declaration form supported by BAS and bank statements.
Low-doc loans may come with slightly higher interest rates and stricter LVR requirements (maximum 60-80% depending on the lender) compared to standard loans. However, for many self-employed borrowers, they represent an excellent solution that full-doc loans can't provide.
Alternative documentation (alt-doc) loans
Alt-doc loans are a broader category that encompasses a range of documentation alternatives beyond tax returns. The requirements vary significantly between lenders - some will accept 6 months of BAS, others require bank statements, and specialist non-bank lenders often have more flexible policies than the major banks.
This is where having an experienced finance broker makes a significant difference. We know the policies of each lender on our panel and can identify which lenders are most likely to approve your application and on what terms.
ABN and GST requirements
Most lenders require your ABN to have been active for a minimum of 2 years for a standard loan. For low-doc loans, some lenders may accept 1-2 years of ABN registration, though less than 12 months will severely limit your options. If your business has been operating for less than 2 years, speak to us - there may still be options available, particularly if you have strong savings history or can demonstrate prior industry experience.
GST registration (required when annual turnover exceeds $75,000) is often used by lenders as a signal of an established, actively operating business, and can support your application.
How lenders assess self-employed income
Lenders assess self-employed income differently to PAYG income, and it's one of the most common sources of frustration for business owners. Key things to understand:
- Lenders generally use your net taxable income (after deductions), not your gross revenue or turnover.
- If your income has declined year-on-year, most lenders will use the lower figure (or average of the two), which can significantly reduce your assessed borrowing capacity.
- Add-backs: Some lenders will add back certain non-cash deductions (e.g., depreciation, one-off expenses) to your taxable income, increasing your assessable income.
- Company income: If you run a company, the income assessed is typically your director's salary plus any franked dividends, not the company profit.
Understanding how your specific income structure will be assessed is crucial before applying. We'll review your financials with you and set clear expectations about how lenders will view your income.
Are rates higher for self-employed borrowers?
For standard full-doc applications, self-employed borrowers typically access the same rates as PAYG employees - the loan is assessed on the same basis once income is verified. Low-doc loans may carry a slight rate premium (typically 0.2-0.7% above standard rates) due to the higher perceived risk associated with unverified income declarations. However, our access to a wide panel of lenders - including specialist non-bank lenders who are very competitive in the low-doc space - means we can usually find you a rate that is entirely reasonable.