If you’re self-employed, you’ve probably heard the myth that getting a home loan is much harder than it is for someone on a salary.
While there can be a few extra hoops to jump through, the reality is that there are plenty of lenders who understand self-employed borrowers and offer flexible options to suit different situations.
One of the biggest misconceptions is that you need two years of tax returns before a lender will even consider your application. While that’s still the preference for many banks, it’s certainly not the only option available.
Full Doc Home Loans
A full documentation (or “full doc”) loan is the most common type of home loan and is often available to self-employed borrowers who have their financial records up to date.
Typically, lenders will ask for documents such as:
- Personal and business tax returns
- Notices of Assessment
- Business financial statements, including profit and loss reports and balance sheets
- Payslips if you’re a company director paying yourself a salary.
The benefit of a full doc loan is that it often provides access to the most competitive interest rates and lending policies.
Alternative Documentation (Alt Doc) Loans
Not everyone has a full set of tax returns ready to go. That’s where alt doc loans can be useful.
Rather than relying solely on tax returns, some lenders may accept alternative evidence of income, such as:
- Business Activity Statements (BAS)
- Business bank statements
- An accountant’s declaration
Alt doc loans can be a great option for business owners whose taxable income doesn’t accurately reflect what they’re actually earning. They can also help borrowers who are still catching up on financial paperwork.
It’s worth noting that these loans often come with slightly higher interest rates or fees, as they’re considered higher risk by lenders. However, they can provide a pathway into the market when traditional lending isn’t an option.
What if you’ve been self-employed for less than two years?
While most major banks prefer to see at least two years of ABN history, there are lenders who may consider applications with as little as 12 months in business. In some circumstances, even six months may be enough.
Your overall application will still matter. Factors such as a strong deposit, clean credit history, stable income and experience in your industry can all help strengthen your position.
How to improve your chances of approval
If you’re planning to apply for a home loan, there are a few simple steps that can help put you in the best possible position.
- Keep your financial records up to date: Lenders want a clear picture of your income, so organised financials can make the process much smoother
- Separate business and personal finances: Having dedicated accounts makes it easier for lenders to understand your income and business performance
- Build your deposit where possible: A larger deposit can improve your options and reduce the lender’s risk
- Review existing debts: Reducing personal debts may improve your borrowing capacity, depending on your circumstances.
Top tip: don’t go it alone
We’re here for you. Reach out out, we have a heap of experience in this area and can help you with your chances of success. We know not all lenders assess self-employed borrowers the same way. Some are much more flexible than others, which is why having an experienced broker on your side can make a real difference.
We can help identify suitable lenders, explain your options, calculate your borrowing capacity and guide you through the paperwork from start to finish.
Want to find out more? Book in a chat now.