Home loans for self employed people

Self-employed people don’t have it easy when they want to get a home loan. Most lenders want to see a stable employment track record. Let’s look at what you need to do to get a great product.

Lenders often shy away from those who work for themselves. The self-employed don’t always offer the financial stability a lender looks for in a borrower and as such, as a self-employed person applying for a home loan, you’ll need to provide tax returns and letters from your accountant before most lenders will even consider you.

Even then, many lenders ask that you’ve worked for yourself successfully for at least two years. It all comes down to risk. A lot of lenders don’t like lending to self-employed people because there’s less income certainty. A bad few months for you may mean that you can’t make your repayments.

But these days more and more Australians are working for themselves, either running small businesses or freelancing across various fields and industries.

So, if you're self employed and thinking of applying for a home loan, here's what you need to know.

Applying for a home loan

Less than two years of self-employment experience

If you’ve been self-employed for less than two years, you can still get a home loan, but there are some strings attached. Of the lenders that offer loans to people with less than two years’ of self-employment history, most ask that you have worked in your industry for longer than two years.

For example, if you’re a self-employed electrician, a lender will want to see that you’ve worked for an electrical company earlier in your career. If you’re a freelance designer, lenders will want to see that you were employed as a designer at some point in your career.

  • Tip: Keep old payslips and get references from your former employers. This can help you speed up the home loan process.

What if I have less than one year’s experience?

Unfortunately, this further limits your options. Major lenders and banks won’t offer any home loan products to you if you’ve worked for yourself for less than one year. They need to see proof of income from your tax returns and other documentation.

However, some speciality lenders may take the wage from your last traditional job into account. They’re thinking that if your business fails, you can always go back to a job that earns similar money to what you earned before.

How will a lender work out my income?

Lenders ask for your old tax returns because they offer a guideline for how much you earn. They try to figure out how much the business may grow and whether your income will be stable for a long period of time. The technique for this varies depending on the lender. Some will base their estimates on your lowest income figure, whereas others may use your most recent tax return. Others still may take your entire self-employment history into account and create an average income figure.

The technique used will affect your home loan application. As a result, you need to figure out how different lenders look at self-employed people. After that, you should consider which technique would suit your situation.

believes the banking royal commission will pose even more hurdles for small business owners looking to get a home loan.

Kaleb had a client recently who was a shareholder in an SME and who derived quite a large salary from that company. “The company had consistently made $1m annually over the last 10 years,” he says, adding thereby 30% of the company’s distributable profits also belonged to this client.

“But one of the big 4 said they wouldn’t take the 30% distributable profit into account because they said my client didn’t have a controlling interest (i.e. more than 50%). The other shareholders could get together and say the profits are not yet available for distribution.

“That’s never going to happen,” he says, but adds lenders are asking a lot more questions.

“Banks and traditional institutions are tailored towards PAYG [Pay As You Go] salaried wage earners and they don’t understand how small business works, the financials, depreciation etc. They are just used to someone on a PAYG payment summary and not trained in small business.”

Lenders also track industry data. As a result, your chances of getting a loan may fall if the lender knows that defaults from people in your industry have risen in recent years.

Let’s delve a little further.

What are lenders looking for in tax returns?

Every tax return you send to a lender must come with a notice of assessment. Your lender will check the signatures and certification to ensure everything matches up. Doing this ensures the tax returns you send to a lender match those you’ve submitted to the Australian Taxation Office (ATO).

After that, your lender will start looking at your returns in more detail. Some lenders ask for more documentation depending on your status. For example, some lenders want different documents from companies than they do from sole traders.

Finally, there are add-backs. These are any strange expenses that your lender recognises as not being a part of your regular business. Some will add these expenditures back onto your income to create a more realistic figure. Others may not.

An add-back is any expenditure that your lender recognises as something other than an ongoing expense. Such expenditures can reduce your taxable income. However, this doesn’t mean that they lower your actual income.

Examples of potential add-backs include:

  • Additional contributions you make to a superannuation fund
  • Depreciation on your taxable assets
  • Any one-off expenses that don’t show up again in other tax returns
  • Any net profits you retain in a company. These are known as Net Profits Before Tax
  • The interest you pay on any business or personal loans. Some lenders will assume that you have deducted this interest from your tax returns
  • Any income you distribute to others via a trust. You may need to provide additional documentation for this, such as a letter to confirm that your trust members don’t rely on the income they receive from the trust
  • The depreciation you can claim back on assets, maintenance, and management of a rental property. Some lenders also take negative gearing into account.

    Your company car may also play a part. Lenders don’t consider company cars as add-backs in the traditional sense. However, they may assume your income is between $3,000 and $6,000 higher than your tax returns show if you have a company car.

Book Call Now

UNO home loans

Need help with your home loan?

UNO Brokers are available night and day for a quick review or your situation and bring expertise that will support better decision making that will save you time and money. Book in a quick call when it suits your busy schedule

Get Started

Related Articles

TESTIMONIALS

What our customers are saying

Sam Rezai
October 2, 2024
I have gone through 6 different mortgage brokers prior to meeting Andrew Wyers. He is the most patient mortgage broker I’ve encountered and also the most knowledgable about the bank’s lending process and products available. It took me 1 year to find a house I was happy with and Andrew was always there to assist with any issues or questions I had; he always return my phone call, even on the weekends or when his away on holidays. The loan process was smooth and I had no complications. The process with Andrew was again nice and easy, he took the time to find and put together the right package that was suited to my situation. I have recommended Andrew to my family & friends and everyone have been grateful and completely satisfied with his service.
Read more
S Wilko
September 23, 2024
I had not dealt with Scott or UNO before finding them on the internet. Even as an Australian citizen living and working overseas, I knew obtaining a loan would be difficult. However, Scott went above and beyond what I expected from a mortgage broker. I genuinely don’t think you could find another company that works as hard as they did to get my home loan approved. I cannot recommend them highly enough. Everyone I dealt with at UNO were extremely professional and helpful. If you are looking for a broker, you would be mad not to give them a go. Thanks to Scott Wilkinson, Dalby Bajwa, Jena Lasquite and Andrew Pacini. Shaun.
Read more
Shan Liao
September 3, 2024
I had an outstanding experience with Tian Liu. He was incredibly professional and attentive, going above and beyond to meet my needs. His expertise and dedication made the entire process smooth and stress-free. Tian's deep knowledge of the market and commitment to finding the best solutions for his clients truly sets him apart. He was always available to answer my questions and provided invaluable guidance throughout. I highly recommend Tian Liu to anyone in need of a reliable and skilled broker!"
Read more
Nathanael Chin
September 3, 2024
Tian Liu provided exceptional service throughout the entire process. His professionalism and keen attention to detail were evident from the start. Tian consistently kept us informed and offered insightful advice that made us feel confident in our decisions. He truly cares about his clients and works tirelessly to ensure the best possible outcome. We couldn't be happier with his assistance and highly recommend Tian to anyone looking for a trustworthy and knowledgeable broker.
Read more
Patrick Winters
August 14, 2024
For the past three years, it has been an absolute pleasure to work with Mike Parsons. He has consistently helped us navigate commercial property loans with skill and efficiency. Mike’s timely and professional responses to our inquiries have been invaluable. We have built a strong, reliable relationship with him and eagerly anticipate continuing our collaboration in the future. We highly recommend his services.
Read more
Lee Robibaro
August 6, 2024
I am so thankful and grateful to have Scott Wilkinson as my broker. He not only looked after me every step from start to finish he gave me confidence and I was able to trust him and his expertise. My children and I are now happy in our new home and very appreciative of Scott's help. I will definitely be only having Scott as my broker from here onward as there is no mucking around and straightforward answers. Thanks again
Read more
Steve Mav
August 6, 2024
Scott and the whole team at uno have been amazing. Super responsive and helped us achieve a result that we couldn’t have possibly achieved on our own.
Read more
Thien Pham
August 5, 2024
Scott, Dalby and Jena were awesome to work with for my recent Home Loan, they are responsive and knowledgeable - which helped ensure a smooth purchase from pre-approvals to settlement. This is the second property I've purchased with UNO as my mortgage broker and would definitely recommend their services. Thanks again to the UNO Team for the awesome support.
Read more
Scott Hutchinson
August 5, 2024
I am writing this summary in support of recommending Mike Parsons as a Mortgage Broker. At the time of writing this, I have known Mike for 4 years and he has executed 4 mortgages deals for me (including 2 refinances) over that time. Mike has provided me incredible service as a mortgage broker as follows : - Works painstakingly on getting the scenarios together to provide you options that optimize your position. - Works inordinate hours on the detail necessary to support the scenarios. - Mike keeps you updated on the status and progress of the applications and also helps you work through answering questions and any complexities that may arise. -In my cases, given the complexities and timings of my situations , these application processes would take many weeks to finalize . Mike never gave anything other than utter commitment and focus to getting the job done. Mike acts as a true business partner throughout this whole broker /mortgage journey. I simply would only go to Mike for any future dealings on getting a loan from a bank (and as will my kids in the future !) . There is no way a bank (I have seen anyway) would provide this kind of time nor service to a customer. You can rest assured that once Mike has done the deal, you have ended up with the most optimized position taking into account all the variables/scenarios in play. Scott Hutchinson
Read more
Jason Seam
August 5, 2024
I've worked with Scott Wilkinson for my last 2 properties and he's been excellent. He sourced multiple options and didn't push a specific bank, tailoring his recommendations to me based on my requirements. I was specifically requesting a "medico loan" and Scott could navigate that extra requirement with expertise. When I was initially working with Scott, I was also trialling 2 other brokers and neither of those 2 had the same breadth of lenders, or could provide the same deals. I've referred multiple buyers to Scott and his team; one of them said to me after working with him, "how'd you find this guy, he's so good compared to all the other broker's I've worked with!" I'm going into my next purchase with Scott as my broker partner again. I recommend him to everyone
Read more
Tina Anderson
July 29, 2024
My experience with Mortgage Broker - Scott Wilkinson, and his team - exceeded my expectations! I couldn’t be happier after settlement - in this current financial climate. He listened to what my requirements were in a loan and then devised a suitable plan for me moving forward. Which was something I didn’t think was possible to achieve. I strongly believe that Scott’s qualifications and previous experience in the Finance Sector - sets him apart from other Mortgage Brokers as he has more insight into the industry and the needs of the customer. Scott was professional, provided solid options, was timely with communication and gave great advice. I will definitely be using Scott’s services in the future and I highly recommend him to anyone as a Mortgage Broker.
Read more
Marlon Baena
July 22, 2024
Karis dedication to assisting with our home loan, even while I was on holidays, truly exemplifies a commitment to excellent service. It's the small things that often make a big difference, and it seems Karis attention to detail and clear communication were key to our smooth home purchase. I highly recommend using UNO and Karis for your home loan needs.
Read more