Self-employed

Applying for a loan when you are self-employed can be a little more complex than someone who has an employer. This is because lenders may perceive you as a riskier borrower as your income may not be as stable. However, if you have been operating your own business or contracting for two years with a relatively stable income, you may still put forward a strong application. If you have been self-employed for less than two years, there may still be avenues for you.

Here we will look at what banks consider when looking at your application, and ways to strengthen it.

What documents do I need to provide when self-employed?

The documents you need to submit are lender dependent, which helps them determine your average income and ability to repay the loan. If you are a sole trader, we collect your latest one-year personal tax return, your latest ATO notice of assessment and either a 12 months’ Business Activity Statements (BAS) or a second year’s tax return.

You may also be asked to provide bank statements which demonstrate your savings behaviour. To compliment this, you will also need to provide two forms of identification, one of which must include your current residential address.

The lender will want to know about your assets (such as cars), superannuation balance and investments (such as shares), as well as liabilities such as credit cards, loans or debts. On top of this, you will be asked to provide a breakdown of your regular expenses such as groceries, insurance premiums, utility bills, transport, entertainment, clothing, childcare and subscriptions.

If you have already signed a contract to purchase a home, you will be required to provide the contract to the lender, and some may also require evidence you have taken out building insurance on the property.

What expenses are considered by lenders?

Ongoing personal and business expenses are considered by lenders when determining whether you will be able to comfortably make your repayments. One-off expenses, such as purchasing a car or making additional contributions to your super, could actually be added back as these are not anticipated to recur and impact your future income. Your broker can speak with you about which expenses the lender may add back to increase your annual income.

Tips to strengthen your application

If you’re looking to apply for a home loan as a self-employed person, there are a few considerations that could help strengthen your application:

• Wait until your business has been operating for at least two years and you have been receiving a stable income.
• Provide documentation of tax write-offs, depreciation, superannuation contributions, interest repayments on loans and one-off purchases that the lender may add back to your income.
• It could help to provide information on your employment prior to becoming self-employed, including income, to demonstrate expertise or the potential to return to another job should your business experience troubles.
• Try to save at least a 20% deposit to show strong saving ability and avoid paying Lenders Mortgage Insurance (LMI).
• Check your credit report and ensure it is correct. If your credit score is low, consider ways to boost it prior to applying. Your broker can help you with this.

Another way to help strengthen your application for a loan is to have a broker on your side. A broker understands the requirements of different lenders, helping find the right solution for your needs.