How to Secure a Home Loan as a Self-Employed Borrower

For self-employed Australians, securing a home loan can feel more challenging than it does for salaried workers. Traditional lenders often require stable income proof, which can be difficult for those who run their businesses or work as freelancers. However, with the right strategy and preparation, self-employed borrowers can successfully obtain a mortgage. This guide outlines the key steps to improve your chances of securing a home loan.

1. Understand Lender Requirements

Unlike PAYG employees, self-employed borrowers must provide additional financial documentation to prove their income stability. Most lenders will ask for:

At least two years of tax returns (both personal and business)
Profit and loss statements for the last two financial years
Bank statements showing consistent income
BAS (Business Activity Statements)
An ABN (Australian Business Number) that has been active for at least two years

If your income varies, some lenders may take an average of the last two years' earnings, while others may consider the lower year’s income.

2. Improve Your Credit Score

Lenders assess your credit history to determine your reliability as a borrower. To improve your credit score before applying for a loan:

Pay off outstanding debts
Avoid late payments on bills and credit cards
Check your credit report for errors and dispute any inaccuracies
Limit new credit applications to prevent unnecessary inquiries on your report

3. Save for a Larger Deposit

Having a bigger deposit can increase your chances of approval and reduce the amount you need to borrow. A deposit of at least 20% can help avoid Lender's Mortgage Insurance (LMI), making your loan more attractive to lenders.

4. Consider Low-Doc or Alternative Loans

If providing full financial records is difficult, some lenders offer low-doc loans specifically designed for self-employed individuals. These loans may require:

A declaration of your income
A letter from an accountant verifying your earnings
Higher interest rates or stricter conditions

It’s crucial to compare different lenders and their low-doc loan options to ensure you’re getting a competitive rate.

5. Maintain Stable Business Income

Lenders prefer borrowers with steady and growing business revenue. To improve your chances of loan approval:

Avoid sudden drops in income before applying
Keep personal and business finances separate
Demonstrate business growth and profitability through consistent financial records

6. Work with a Mortgage Broker

A mortgage broker can help self-employed borrowers find lenders that cater to their unique financial situations. Brokers have access to multiple lenders and can guide you through the application process, increasing your chances of approval.

7. Reduce Tax Deductions Before Applying

Many self-employed individuals claim tax deductions to reduce taxable income. However, a lower taxable income can reduce borrowing power. Before applying for a mortgage, consider speaking with an accountant about the best strategy to maximize your loan eligibility.

Final Thoughts

While getting a home loan as a self-employed borrower may require extra documentation and preparation, it is entirely achievable. By maintaining strong financial records, improving your credit score, and working with the right lenders, you can successfully secure a mortgage and achieve your homeownership goals.

If you're self-employed and looking to buy a home, consult with a mortgage broker or financial advisor to explore the best loan options for your situation.