Self-Employed? How to Prepare for Your Home Loan Application

It’s a pretty widely supported notion that small business is the backbone of Australia. It’s estimated that over 2.3 million Australians are self-employed or operating as owner-manager of unincorporated enterprises.

The path of self-employment offers a wealth of opportunities for innovation and flexibility. However, there are some challenges when it comes to trying to secure a home loan. Unfortunately, the traditional lending landscape isn’t well suited to self-employment, particularly due to the differences in the financial profiles of the self-employed vs. more typical employment. Despite the challenges, with the right advice and strategy, there are some great options available!

There are some challenges you might be facing as a self-employed person when looking for a home loan.

Proving your income stability

Some lenders may see self-employment as risky due to possible income fluctuations. It can also be harder to prove your income through documentation, often requiring extra documentation such as tax returns or evidence of industry experience. Sometimes this lack of evidence can result in higher interest rates or less than favourable loan terms.

So, what are some available options?

Low Doc Home Loans

Low Doc is short for ‘low documentation’ and essentially means a loan that is for borrowers who are unable to or don’t have the full range of usual required paperwork for a standard loan. They are specifically designed for self-employed individuals, contractors, or small business owners who might not have up-to-date financial records or traditional forms of income verification.

A potential downside is that low doc loans may carry higher interest rates and fees compared to standard home loans. This is because lenders often perceive them as higher risk. However, it can be possible after a period of time to switch from a low doc loan to a full doc loan and secure better terms.

Standard Loans

If self-employed individuals can provide sufficient documentation, such as tax returns and financial statements, they might qualify for a standard home loan, potentially with a lower interest rate and more attractive features.

What documentation do I need to get together to prepare for my loan application?

Being self-employed, the more documentation you can provide, the better your chance of securing a suitable loan. Here’s what’s usually required:

Proof of Income

This includes at least two years' worth of tax returns and Notice of Assessments to verify that the tax returns match those submitted to the ATO. You’ll also need your BAS (Business Activity Statements) for the last 6-12 months.

Proof of Assets

Lenders may want to see what types of equity and assets such as properties, savings and investments.

Credit History

You may be required to furnish at least three months' worth of statements for your business credit cards and transaction accounts, along with evidence of your cash flow and financial obligations.

The specific documentation requirements can vary greatly depending on the lender, the nature of your self-employment, and the type of loan you are applying for (e.g., low doc loan vs. standard home loan). It's essential to consult with a mortgage broker or financial advisor who understands the unique needs of self-employed individuals to ensure that you are meeting all of the requirements for the best possible loan for your situation.

What are some other top tips when applying for a home loan when self-employed?

Build a decent deposit -Aim for at least 20%. The better your deposit, the better your chances of securing a suitable loan

Find the right lender

Consider add-backs

Get professional advice

How a Mortgage Broker Can Help

Securing a home loan as a self-employed individual can be more complex and challenging compared to traditional salaried employees. Mortgage brokers can assess your financial status, your business performance, and other personal factors to recommend the best loan products that align with your goals and capabilities. Through personalised guidance and a comprehensive analysis of your financial status and business performance, our IDEAL Financial experts can ensure you select the best loan option that suits your unique circumstances.

As we mentioned earlier, there a quite a few required documents to secure your home loan. A good mortgage broker will help you with gathering the necessary documents, such as tax returns, business statements, and proof of cash flow, and ensure that they are presented in the best possible light. IDEAL Financial will take care of all of this for you, to make the application process seamless. Our expertise in handling add-backs, low doc loans, and specific lender criteria enhances your chances of loan approval.

With established relationships with various lenders, IDEAL Financial can negotiate favourable terms for your home loan.

Whether securing a lower interest rate or flexible repayment terms, our team is committed to getting you the best deal. We stand by you throughout the process, providing continuous support and guidance from initial application to final settlement. Our in-depth understanding of the intricacies of self-employment and the lending landscape in Australia ensures a stress-free experience for you.

If you’re self-employed and would like some help with securing a loan for your next home, please get in touch today.

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