Self-employed home loans: What to know and how to apply

Applying for a home loan when you're self-employed might sound complex – but it doesn't have to be. Whether you're looking to get into the property market as a first home buyer, purchase your next home or kickstart your investment portfolio, there are ways to help set yourself up for success.

In this article, we'll break down the process on how to get a home loan as a business owner, and offer some tips to give you the best chance of getting your loan approved. We'll cover exactly what's involved in applying for a self-employed home loan, as well as the additional documents required. We'll also discuss whether it's worth considering a low doc home loan, and some ways in which Westpac can help you get into your own home sooner.

What you’ll learn

• Who is considered a self-employed borrower
• Home loans for self-employed borrowers vs salary- earners
• Documents you’ll need for a self-employed home loan
• Understanding low doc home loans
• The application process: home loans for business owners
• How to speed up the home loan process
• Things to consider when thinking about applying for a self-employed home loan

Who is considered a self-employed borrower? 

The first step is to understand if you’re classified as ‘self-employed’. Lenders typically consider you as self-employed if you:
 

• Are a non-PAYE taxpayer
• Are the primary decision-maker of the business
• Have direct control over the work you do, the hours you work and who you employ
• Are independent of external controls
• Contribute all or most of the operating capital.

Examples of self-employed borrowers include:
 

• Sole traders
• Any person in a partnership
• Business owners
• Some tradespeople
• A person who operates their business from home.

If you fall into one of the above categories, the documents required to process your home loan may be a little different from someone who earns a salary.

Home loans for self-employed borrowers vs salary earners 

You might be wondering: What’s the difference between a standard home loan applicant and a self-employed borrower? And why do I need to go through a different process?

“For most lenders, it generally comes down to risk,” says Westpac Business Banking Manager Jordan Milessis.

“When you run your own business, your income isn’t always guaranteed, and you may not generate the same amount each month,” Milessis explains.

“Some lenders might consider your incomings to be unpredictable or irregular, which could mean that you’re at more risk of not meeting your loan repayments. 

“The key to giving yourself the best shot at a self-employed home loan is demonstrating to the lender that you’re a safe and reliable borrower, and you can afford to service the loan.”

As such, if you’re self-employed, you’ll likely need to provide more detailed information about your financial situation through additional documents.

What documents do you need to apply for a self-employed home loan?

If you’re self-employed and want to apply for a home loan, you need to demonstrate evidence of your business’s financial position. Most lenders will want to look at your past tax returns. Depending on whether you’re a sole trader, partnership or company, you’ll need to show different types of documents. 

Sole traders:
 

• Personal tax returns from the last / previous two years, as well as your latest ATO notice of assessment

Business partnerships, companies and trusts:
 

• Personal tax returns, supported by each year’s ATO notice of assessment
• Business, company or trust returns 
• Financial statements (including profit and loss statements, and balance sheets) 

It’s also a good idea to include your tax-deductible expenses in your self employed home loan application. These might include interest repayments (if you have a business loan), rental property expenses, one-off expenses, depreciation, asset write-offs, company car deductions and family trust distributions. 

The more information and documentation you can provide, the better – so being organised and maintaining records is key. 

What is a low doc home loan?

A low documentation home loan (otherwise known as a low doc home loan) is offered by some lenders to self-employed borrowers who may not be able to meet all documentation requirements of a regular home loan application. 

You might consider this option if you don’t have enough income documentation or PAYG statements to prove that you can service a loan. 

Low doc home loan requirements include any of the following:
 

• A signed Borrower’s Income Declaration stating your usual income
  
• Your registered business name
• Your Australian Business Number (ABN) – in most cases you need to have had your ABN for at least two years
• Your Business Activity Statements (BAS) for the last 12 months (you may need to confirm that you've been registered for GST for at least 12 months).

Low doc home loans generally require a slightly lower loan-to-value ratio (LVR) than other home loan applications and may have a higher interest rate too, so you might need a larger deposit or more equity to qualify for the loan.
 

Westpac does not offer low doc home loans. Instead, we offer the same types of home loans to all customers – but we require financial documents and ATO notices of assessment over a longer period from self-employed borrowers.

If you’ve recently started your own business and don’t yet have the documents you need to apply for a home loan, there may be other ways to assess your application. Reach out to your local Home Finance Manager to discuss your options – we’re always happy to help.

Application process: home loans for business owners 

At Westpac, we assess home loans for small business owners using the same process as the one for salary earners, taking into account the following:
 

• Financial and income statements 
• Savings history
• Outstanding loans or debt (car or personal loans, prior home loans, credit cards)
• Existing assets (real estate, vehicles, investments, superannuation)
• Loan amount and serviceability
• Your deposit (based on the property value and loan-to-value ratio)
• Whether you need Lenders Mortgage Insurance (LMI) to top up your deposit.

The good news? You won’t be put on a higher home loan interest rate just because you’re self-employed: your loan comes with the same rate, features and benefits as the loans for salary earners.

If you haven’t already, check out the Westpac home loan calculator and home loan comparison tool to research the best home loan rates for your budget and needs.

How to speed up the home loan process

In some cases, Westpac might be able to assess your application quicker. If you’re eligible for our Fast Track assessment process, you can apply for a home loan using only your last two years of ATO notices of assessment, rather than your business financials. 

You may be eligible if you:
 

• Are self-employed 
• Have a 20% deposit saved 
• Can provide the last two years of personal notices of assessment from the ATO 
• Pay yourself a salary from the business, or receive distributions from your partnership or trust 
• Won’t need to rely on any other sources of income to afford your home loan repayments.

Things to consider when thinking about applying for a self-employed home loan

When applying for a self-employed home loan, there are a few things you can do to make the process as seamless as possible: 
 

1. Maintain good financial records. It’s always a good idea to have original copies of documents including past payslips, recent bank statements, tax returns and anything else that will help confirm your financial situation as a business owner. 
2. Ensure you can demonstrate consistent income, business growth and increased earnings over time. 
3. Speak to your tax agent or accountant. If you’re using any tax minimisation strategies commonly recommended for business owners, your taxable income may appear lower, which may make it more difficult for you to get a home loan.

Ready to apply?

We understand that applying for a home loan as a business owner can seem overwhelming – but we’re here to help, every step of the way. For more information on how you can get into your own home sooner, call us on 132 558 or visit a branch to chat to your local Home Finance Manager.