In 2018, approximately 17% of Australians were self-employed, a number that continues to trend upwards due to changes in the labour market. Lenders can be hesitant to approve loans for those with non-traditional employment, however a home loan is in no way out of limits for these applicants.
Financial institutions are required to verify the income of all home loan applicants to ensure that they will be able to make repayments regularly over the long term. This can be difficult for self-employed applicants or those with regular income through a side-hustle, as income can be seasonal and unsteady. Such applicants can benefit hugely by using a broker who specialises in self-employed home loans, as they have the experience to ensure your documentation is in line with requirements to have your loan approved at the initial assessment.
What type of loan can I get as a self-employed applicant?
Self-employed applicants are eligible for the same type of loans as any other borrower, however they must prove their income through other methods. This includes standard home loans, lines of credit and even construction loan facilities.
Lenders like stability, so the longer you’ve been in business the easier it will be to get a home loan approval. As proof of income, self-employed applicants will need to provide:
· 2-3 years of business tax returns
· 2-3 years of personal tax returns
· Most recent 2-3 years Notice of Assessment
Your income will be assessed against your declared taxable income rather than gross turnover, and any large variances year-to-year will need to be explained. Consistent earnings with an upwards trend are indicative of a healthy business, so your application is likely to be approved so long as you meet security and other requirements.
If you are unable to provide the documents listed above, it doesn’t mean you are ineligible for a home loan. Low-doc options may still be possible for these applicants, and are now available from most major Australian lenders.
Low-doc loans were specifically designed to cater for self-employed applicants who may not be able to provide the standard proof of income. Lenders assess your borrowing capacity against an alternative set of financial measures, and eligible applicants must generally:
· Hold an ABN
· Be self-employed in the same industry for at least 12 months
· Have verified Business Activity Statements (BAS) from the last year of operations; or
· Provide a signed letter from your accountant stating verified business income.
The downside of low-doc loans is that they may have a higher interest rate and in some cases require a higher deposit amount than a regular home loan. They are also becoming less common due to tighter lending regulations, however a Track Financial self-employed specialist will be able to guide you to the most appropriate low-doc option for your situation.
Whether you have been in business for thirty years or have just experienced your first year of business success, Track Financial will be able to help select the home loan that’s right for you. With access to all of Australia’s major lenders plus many independent financiers, we have the knowledge and experience to get your self-employed home loan approved.