Self-Employed Home Loans: There's More Than One Way to Prove Your Income

30 Sept

If you run your own business, you've probably had someone tell you that getting a home loan is going to be tough. Maybe a bank told you. Maybe a mate did. Maybe you've just assumed it and put off asking.

Here's what we'd like you to know. Being self-employed doesn't make you a harder client. It makes you a different one. And after more than 20 years working with business owners, sole traders, contractors and company directors, self-employed clients are our bread and butter.

Lenders don't all look at your income the same way

This is the part most people don't realise. There is no single rule for how a lender assesses self-employed income. Each lender has its own policy, and the differences between them can be huge.

One lender might want two years of personal and business tax returns and use an average of both years. Another might be happy with one year. Some will use your most recent year on its own if your income has gone up. Others will take the lower year if it's dropped, which can make a real difference to how much you can borrow.

Then there's how your business is set up. A sole trader, a partnership, a company and a trust are all assessed differently. Some lenders will consider retained profits sitting in your company. Some will look closely at trust distributions and who they go to. Some lenders will add back expenses like depreciation, interest, extra super contributions or one-off costs that don't reflect what the business actually earns year to year. Two lenders can look at the exact same set of financials and come to very different answers. We mean it, we’ve seen borrowing capacity variances in the hundreds and millions between lenders with the same information. Some lenders don’t do self employed at all…..

Full doc, low doc and everything in between

Most people have heard of a standard full doc loan, where your tax returns, financials and notices of assessment do the talking. That suits plenty of our clients well.

But it isn't the only path. If your tax returns are behind, your business has grown quickly, or your financials don't tell the full story yet, there are other ways to verify income. Depending on the lender, that might include BAS statements, business bank statements or a letter from your accountant. We've written more about this on our Low Doc Home Loans page. In another case study, our client had purchased 2 very large machines that generate another $400,000 a year in profit, but they came with large repayments on asset finance. The prior year financials didn’t account for the new profits but we had to expense the new machines. That doesn’t seem really fair on a growing business. So we found a different solution that did collect the new revenue and account for the new costs. It changed the trajectory of our clients outcome to being able to build their new home now, rather than waiting another 12 months to provide the next lot of financials.

How long you've held your ABN matters too, but again, it varies. Many lenders look for a couple of years of trading. Some will consider a shorter history, particularly if you've worked in the same industry before going out on your own. A plumber who spent ten years on the tools before starting their own business is a very different story to someone starting something brand new, and some lenders recognise that.

Why we ask for everything up front

When you sit down with us, we'll ask for a lot. Tax returns, financials, BAS, bank statements, details of any business debts, and a good conversation about how your business actually works.

That's not us making life hard. It's the opposite. The more we understand about you and your business, the better placed we are to work out which lenders will see your income the way it deserves to be seen. We know the banks and their rules, and we know which ones tend to suit which situations. Getting the full picture early means we can go straight to the lenders most likely to say yes, rather than trying one bank, getting knocked back, and ending up with a credit enquiry you didn't need.

It also means there are fewer surprises later. If something in your financials is going to raise a question with a lender, we'd much rather know about it now and have the answer ready.

Common situations we help with

Every self-employed client is different, but a few situations come up often:

Your latest tax return shows a big jump in income and you want that recognised
Your taxable income looks low because of legitimate business deductions
You've recently changed your business structure, such as moving from sole trader to company
You're behind on lodging tax returns
You have ATO debt you'd like to sort out as part of your loan, which we cover on our ATO Debt Consolidation page
You want to buy commercial property for your business through Commercial Lending, or look at SMSF Lending

Whether you're buying your first home, refinancing an existing loan, building or adding to your investment portfolio, the same approach applies. Understand the business properly, then match it to the right lender.

Talk to someone who gets it

If you've been told no before, or you've been putting off the conversation because you assume the answer is no, it's worth a second look. Lender policies change, your business has probably changed too, and what didn't work at one bank may well work at another.

You can read more on our Self Employed Home Loans page, meet the team, or make an appointment and we'll walk through your situation together.

This article is general information only and doesn't take into account your personal objectives, financial situation or needs. Lender criteria change regularly and all applications are subject to lender assessment and approval.