Guide to home loans for self employed borrowers

What is a self employed home loan?

In reality there isn’t such as thing as a ‘self employed home loan’ – this makes it sound like some sort of product but in reality it just refers to the borrower being self employed and applying for a home loan. 

The main difference between someone who is self employed applying for a home loan compared to someone who is PAYG is how the bank verify your income and what supporting documents they require.

You don’t pay a higher interest rate because you are self employed unless you apply for a specialty loan product which we discuss in another section of our learning centre.

If I’m self employed, is it harder to get a home loan compared to someone who is working for a company as a PAYG?

It isn’t necessarily harder, however, there are more supporting documents needed along with a more detailed verification of your income to calculate your borrowing capacity.

When you are self employed, the banks will look at your history to verify your income.

Across all the banks that we work with, it can be broken down into the following methods of verification depending on the bank:

  • Using the lower year’s income – Verify you income by taking the lower income year over the last two financial years.  For example, if you earned $100,000 in year 1 and $200,000 in year 2 – banks with a conservative approach will use the $100,000 figure in year 1 to calculate your borrowing capacity.
  • Using the average of your last two year’s income – taking the average income between your last two financial years.
  • Using the most recent year’s business income – if your most recent year’s income is higher, this a great method to maximise your borrowing capacity.
  • Using your personal income – if your structure is a company and you pay yourself a regular salary from your company, some banks have recently improved their verification policy to rely on your payslip and your most recent income statement from the ATO.  There are conditions around this method but if it is suitable to your situation, then it is one of the simplest and straight forward way to prove your income to the bank.
  • Using your income statement from your previous role – this method is useful when you’ve just started your business and your business is doing the same type of work as your previous job.  We often see this in IT professionals who change from being employed to self employed while doing the exact same work, and in some cases, even for the same employer.

As you can see from the above, there is a huge variance between banks on how your income is verified and choosing the right bank with the right income policy is paramount to getting the loan that you need.  This is why a mortgage broker is generally better suited for self employed borrowers than a lender at a bank.  The flexibility of accessing different income policies will increase your chances of approval and obtaining the loan amount you need.

How long do I need to be self employed before I can apply for a home loan?

It is ideal to be self employed and trading for at least 2 years however, there are many options available if you have traded for less than 2 years.

The reason that banks prefer you to have 2 years trading history is because they can see stability or a trend in your income. 

If you have been trading for less than 2 years, the bank will usually have some extra conditions such as ensuring you have industry experience.  For example, if you have been working as a hair dresser for the last 5 years and have been running your own business as a hair dresser for less than 2 years, then this would be acceptable as long as you meet the income requirements of the bank’s assessment criteria.

If you have been trading for less than 1 year, this is not a deal breaker as there are specialist lenders that cater to self employed customers in this situation.  You may have to pay a slightly higher interest rate and meet other additional conditions such as not being able to borrow more than 80% of the property value.  So if you are in this situation, make sure you speak to a mortgage broker to understand what options you have. 

In addition, we can always develop an exit strategy to move your loan to another more suitable bank once you have met the 2 year trading criteria, so there are certainly options available.

What documents do I need to provide as a self employed borrower?

This depends on the structure of your business between being a sole trader or a company (Pty Ltd) or if you are operating as a trust.

Here are a list of documents for each business structure:

Sole traders:

  • Individual tax return
  • Notice of Assessment from the ATO
  • Recent BAS statements if you are registered for GST


  • Individual tax return of the company director
  • Notice of Assessment from the ATO
  • Company tax return
  • Accountant prepared financial statement including profit and loss and balance sheet
  • Accountant prepared Depreciation Schedule
  • Recent BAS statements if you are registered for GST

Trading as a Trust:

  • Individual tax return
  • Notice of Assessment from the ATO
  • Trust tax return
  • Accountant prepared financial statement including profit and loss and balance sheet
  • Accountant prepared Depreciation Schedule
  • Recent BAS statements if you are registered for GST
  • Trust deed showing evidence of who the beneficiaries are and details of the trust

How are company profits treated by banks?

If you business structure is a company, the way the banks treat profit can vary depending on their credit policy.

In most cases, if you are the only director of the company, the bank will include the company profit as part of your income for your borrowing capacity calculations. 

However, if there are two directors or more and you are not in a spousal relationship (married), then the profit may be excluded from your income calculation.  Although recently, we are seeing a more logical approach to this as banks will use the amount of company profit in proportion to the percentage of the company that you own.  In general, you need to own a minimum of 25% but there are some banks that will require you to own a minimum 50% of the company before they consider using any company profit.