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Is getting a home loan more difficult when you are a self-employed borrower?

There is a common misconception that if you are self-employed obtaining a home or investment loan is difficult. It can be harder, but it isn’t always. In today’s modern workplace the fact is more people than ever before are self-employed and most lenders have adjusted their policy to suit demand it’s just a matter of knowing which lender’s policy will best cater to your situation.

Research is critical here as you might just be surprised as to what is available to you. 

When you work for yourself, you may pay yourself a consistent income, but, more likely, your earnings fluctuate month to month. You may have experience managing your personal cash flow to accommodate this; however, lenders tend to look for stability and a track record of making ends meet. So, if you are self-employed and want to take out a home loan, how do lenders calculate your income when assessing your application?

The way your income will be calculated will vary depending on the lender. For example, most lenders will require at least two years’ tax returns from which they will calculate your average income. 

Some lenders may only use the lowest figure from the last two years, some may accept one years’ tax return and it may be possible for some loan types to only require six months’ payslips along with a letter from your accountant. 

The income on your tax returns isn’t necessarily the final figure lenders will consider. They could also look at the expenses that you’ve incurred that reduced your taxable income, but aren’t recurring, and add these back. This can actually boost your overall income. The expenses that may be added back, depending on the lender, include:

• depreciation (such as on vehicles or investment properties) 
• additional superannuation contributions you have made 
• asset tax write-offs
• net profit before tax that have been retained within the business
• one-off purchases, such as a company car 
• interest repayments for a business loan

There are additional expenses that could potentially be added back, which your Green Team finance broker can discuss with you. 

If you have been running your business for more than one year, but less than two, there may be some lenders who will still consider your application. If your business has been operating for less than one year, it could be trickier as lenders like to see consistency with your income. 

This is just one reason why it pays to consult a professional finance broker who knows bank policy from a range of lenders and can give you the insider’s scoop on which lender will provide the most favourable loan terms for your situation.

If you’re self-employed and applying for a loan, in most cases you will need to provide more documents, to demonstrate your dependability in repaying the loan, than someone who is a PAYG employee. 

Documentation required by the lender, in addition to general personal financial information such as bank statements, may include:

• last two years of company tax returns
• last two years of other financial statements (e.g. profit and loss statements)
• last two years of personal tax returns
• date of ABN and GST registration

Your experienced finance broker will be in the best position to walk you through exactly what is required and will package all your documentation with the aim of making sure that the lender has everything they need to approve your application in a speedy manner. 

If you are self-employed and ready to buy a new home or invest in property, don’t let the perception that it’s too difficult to secure a home loan hold you back. Get in touch today, and we’ll help you find a better finance deal.

Would you like to know more?

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