For many Australians, the ultimate goal is ditching the 9-to-5 routine and starting a business. But when it comes to getting a home loan, being self-employed can present some unique challenges.
Lenders often see self-employed borrowers as higher risk compared to those in traditional employment, mainly because self-employed income tends to fluctuate. This variability can make lenders question a borrower’s ability to maintain regular loan repayments.
If you’re among Australia’s 2.6 million small business owners or one of the million independent contractors, here are some key steps to strengthen your loan application.
1. Show Business Longevity
Lenders feel more confident when you have a stable business history. One way to demonstrate this is by showing that you’ve held your Australian Business Number (ABN) for at least a year or two, indicating that your business is well-established and likely provides a steady income.
2. Gather Proof of Income
Employees can typically provide a few pay slips, but if you're self-employed, you’ll need to prepare more documentation. Requirements vary by lender, but you may be asked for your last two years of financial statements, including business and personal tax returns, or recent business activity statements.
In some cases, an income statement signed by you and your accountant confirming your financial situation may be required. Since these requirements can differ, speak with us to understand what each lender is likely to ask for.
3. Highlight Additional Assets
Personal savings and investments can strengthen your application. A track record of consistent savings can help convince lenders that you’re prepared to manage home loan repayments.
4. Report Income Accurately
The Australian Tax Office (ATO) estimates that about 10% of small businesses under-report income or overstate expenses. This not only risks ATO penalties but can also lower your borrowing capacity. Generally, a lower reported income means a lender might assume you’ll struggle to afford monthly repayments.
5. Consider Low-Doc Loans
Low-doc loans are tailored for self-employed borrowers who lack the traditional paperwork required for a standard home loan in Townsville, Brisbane, Gold Coast, Sunshine Coast in Queensland, Australia. While they allow entry into the property market with fewer documents, low-doc loans often come with higher interest rates due to perceived risk.
The positive side is that this higher rate may only be temporary. By building a solid repayment history, you may later qualify to convert your loan to a standard “full-doc” loan, which often comes with a lower rate.
Since not all lenders offer low-doc loans, reach out to us to explore which options may suit your circumstances.
6. Get Professional Help to Simplify the Process
Applying for a home loan as a self-employed individual may require additional preparation, but it’s achievable. If you’ve built a profitable business and have a stable income, lenders are more likely to view you favourably, potentially offering a standard home loan.
However, as a busy entrepreneur, finding the time to put together a comprehensive application can be a challenge. If that sounds like you, reach out to us. We can help manage the home loan in Townsville, Brisbane, Gold Coast, Sunshine Coast in Queensland, Australia process while you focus on running your business.
To learn more, contact Premium Finance Group Australia at (07) 4720 8888 or email us at finance@pfga.com.au.
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