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Home loan advice when self-employed

When you’re self-employed, securing a home loan isn’t as simple as sending off pay slips and an employment contract. Since your income is likely to waver from month to month, proving your income can be a little more complicated.

Thankfully, there are some steps you can take to streamline the process. If you’re self-employed, follow our home loan advice to improve your chances of submitting a successful application.

  1. Keep detailed records of your earnings

It’s easy for banks to verify the income of an employed person—they simply need to look over their regular weekly, fortnightly, or monthly pay slips.

But if you’re self-employed, proving your income is often more complicated. Your earnings may fluctuate significantly from month to month or year to year, which can throw off some lenders.

The best way to prove your income is to keep detailed records, ensuring you’ve noted down every dollar coming in and out of your account throughout the financial year. Bank statements, invoices, and any other documents showing evidence of business activity are great options.

2. Always submit your tax returns on time

Tax returns are another crucial factor lenders consider when determining a self-employed person’s income. You’ll need to stay on top of your tax returns, making sure you submit accurate information on time, to improve your chances of securing a loan.

Keep in mind that most lenders require at least two years’ worth of tax returns to determine your income, so if you’re new to the world of self-employment, you may need to wait longer before submitting your home loan application. But hey, it gives you more time to save!

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3. Consider low-doc loan options

Some lenders offer low documentation or ‘low-doc’ loans, which offer flexible solutions for self-employed people. If you have income and assets but are unable to provide the usual documentation (i.e., tax returns and pay slips), you may consider this type of loan.

Remember that low-doc doesn’t mean no doc! You’ll still need to provide some documentation, such as:

  • Business bank statements,
  • Business Activity Statements (BAS),
  • Proof of GST registration,
  • Evidence of your Australian Business Number (ABN) registration,
  • A signed declaration of your income from your accountant,
  • Old tax returns.

Low-doc loans often have higher interest rates than standard home loans, so keep this in mind before applying.

4. Save up a reasonable deposit

One of the best ways to prove to lenders that you’ll be able to cover your loan repayments is a reasonable deposit. Saving up at least 20% of the loan amount shows lenders you’re smart with money—and it also means you’ll avoid paying Lender’s Mortgage Insurance (LMI).

If you’re keen to save up sooner, here are some quick tips:

  • Set a savings goal and track it using a purpose-built app,
  • Identify areas you can cut back on spending.
  • Set up a regular direct deposit into your savings account,
  • Commit to a consistent savings rhythm, even through quieter times.

5. Ask your broker for advice

If you’re still unsure about securing a home loan as a self-employed person, contacting a trusted broker is the best solution. Brokers understand the ins and outs of self-employment loans, including the documentation you’ll need, potential interest rates, and how much you’re likely to be able to borrow.

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Good luck!

With these tips in mind, you’ll be well on your way to securing a home loan as a self-employed person. We wish you the best of luck!

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