10 Things Self-Employed Borrowers Need for Home Loans

Self-employed borrowers can access the same home loan products and rates as PAYG employees, but lenders assess your income differently.

The main difference is documentation. Where an employee submits recent payslips, you'll need to provide tax returns, financials, and in some cases, a letter from your accountant. Lenders use these documents to calculate your assessable income, which determines how much you can borrow. Most lenders require two years of financials to establish a consistent income pattern, though some will consider applicants with 12 months of trading history if the figures are strong.

How Lenders Calculate Your Assessable Income

Lenders take your net profit after tax and add back certain deductions to arrive at your assessable income. Depreciation, home office expenses, and motor vehicle costs are often added back because they reduce your taxable income but don't represent actual cash outflows. One-off expenses like equipment purchases may also be excluded from the assessment.

Consider a graphic designer operating as a sole trader with a net profit of $85,000 after claiming $12,000 in depreciation and $6,000 in motor vehicle expenses. A lender would typically assess their income at closer to $103,000, which significantly improves borrowing capacity. The treatment of add-backs varies between lenders, so the way your business is structured and how expenses are claimed can affect which lender offers the most favourable assessment.

Two Years of Tax Returns vs 12 Months

Most lenders require two full years of tax returns that have been lodged with the ATO. If you've recently become self-employed or your income has increased sharply in the second year, some lenders will assess you on 12 months of financials, particularly if you're applying for a lower loan amount relative to the property value.

A few specialist lenders will consider applications with one year of tax returns plus year-to-date profit and loss statements, but expect a higher interest rate or a larger deposit requirement. If you're within a few months of lodging your second return, it's often worth waiting. The difference in loan amount and rate can be substantial.

ABN, GST Registration, and Business Structure

You'll need an active Australian Business Number, and most lenders prefer to see GST registration if your turnover exceeds the threshold. The way your business is structured matters. Sole traders and partnerships are assessed on the individual's share of net profit. Company directors are assessed on a combination of salary, dividends, and retained earnings, depending on the lender.

Trust structures can be more complex. Some lenders assess the distributable income, while others focus on what you've actually drawn. If you operate through a trust and retain profit within the structure, you'll need a lender that recognises retained earnings in their assessment, otherwise your borrowing capacity will be limited to distributions only.

What Your Accountant's Letter Should Include

An accountant's letter is not always required, but it strengthens your application, particularly if your most recent tax return is more than a few months old or if your income has increased. The letter should confirm your ABN, trading period, business structure, and current year-to-date income. It should also state that your financials are prepared in accordance with accounting standards and that there are no outstanding tax liabilities.

Some lenders will accept a letter in place of a second year of tax returns if the accountant confirms a consistent or improving income trend. The accountant must be a registered tax agent or CPA. A letter from a bookkeeper won't meet the requirement.

How Lenders Treat Business Debt and Liabilities

If you carry business debt, lenders will factor this into your serviceability assessment. Business loans, lines of credit, and outstanding tax liabilities all reduce how much you can borrow. Equipment finance and vehicle leases are treated as ongoing commitments, even if the asset is used to generate income.

In a scenario where a builder applies for a home loan with $40,000 remaining on an equipment loan and a $20,000 line of credit with a $5,000 balance, the lender will assess the full limit of the line of credit, not just the drawn amount. If that line of credit isn't essential, paying it out or closing it before applying can increase your borrowing capacity by $80,000 to $100,000, depending on your income.

The Role of Deposit and Loan to Value Ratio

Self-employed borrowers are not subject to a higher deposit requirement by default, but if your income assessment is marginal or your trading history is short, a larger deposit improves your chances of approval. A deposit of 20% or more also avoids Lenders Mortgage Insurance, which reduces your upfront costs.

If you're applying with less than 20% deposit, the lender's assessment of your income becomes even more important. A strong two-year track record and clean financials will generally get you over the line. If your income is borderline or inconsistent, expect the lender to request additional documentation or decline the application.

Variable vs Fixed Rate Considerations

Self-employed borrowers have access to the same variable rate and fixed rate products as other applicants. Your choice depends on your cash flow and risk tolerance. A variable rate gives you flexibility to make extra repayments and access features like an offset account, which can be useful if your income fluctuates throughout the year.

A fixed interest rate locks in your repayments, which can help with budgeting if your income varies seasonally. A split loan allows you to fix a portion of your loan while keeping the rest variable, giving you stability on part of your debt while retaining flexibility on the remainder. Just be aware that fixed rate loans typically have restrictions on extra repayments and may incur break costs if you refinance or sell early.

When a Low-Doc Loan Might Be Considered

Low-doc loans are designed for self-employed borrowers who can't provide full financials, either because their returns aren't lodged or because their assessable income doesn't reflect their actual cash flow. These loans require a larger deposit, usually 20% or more, and come with a higher interest rate.

They're not a first option, but they can be useful in specific situations. If you're between accountants, if you've had a significant change in business structure, or if you've only recently moved to self-employment, a low-doc product might get you into the property while you build your financial track record. You'll typically need to provide BAS statements, bank statements showing regular income deposits, and an accountant's declaration.

Preparing Your Application Before You Apply

The most common reason self-employed applications are delayed or declined is incomplete documentation. Before you apply, make sure your tax returns are lodged and that your financials reconcile with your BAS statements. If you're claiming significant deductions, be prepared to explain them. Lenders will query large one-off expenses or unusual fluctuations in income.

Having your accountant review your application documents before submission can save weeks. They can identify potential issues and provide supporting explanations where needed. If you're planning to apply within the next 12 months, it's also worth discussing your business structure and expense claims with your accountant to make sure your financials present as clearly as possible to a lender.

If you're self-employed and considering a home loan application, call one of our team or book an appointment at a time that works for you. We'll review your financials, identify which lenders will assess your income most favourably, and make sure your application is structured correctly before it's submitted.

Frequently Asked Questions