A Guide to Property Loans for Self-Employed Borrowers

Residential, Self Employed

Are you a self-employed borrower looking for a loan to buy a property? If so, you’re probably well aware that there can be a lot more hoops to jump through to get a loan than if you had a job, which could make the process tedious.  

There are however a larger range of property loans available to self-employed borrowers in Australia than if you were employed, it’s just that some of them are a little more expensive both to get into and ongoing.

In this blog post, we’ll take a quick look at the types of property loans available to self-employed borrowers, as well as the factors that lenders will consider when assessing your application. Interwoven into this are some tips on how to improve your chances of getting approved for a loan.

The Types of Property Loans Available to Self-Employed Borrowers

There are now a few different types of property loans available to self-employed borrowers, each with its own set of advantages and disadvantages. These are:

  • Traditional fully documented home loans: These loans are the most common type of property loan available to all borrowers, including self-employed borrowers. In the case of proving the income for a self-employed person, this is usually 2 years Tax Returns for the individual and the company if there is one, plus the balance sheet and the profit and loss (financial Statements) for BOTH financial years.
  • Simplified Self Employed Loans: These loans are for those people who have companies and at a pinch those with a company/trust structure who pay themselves a wage/salary. You’ll also need written confirmation from your accountant that your company can afford to pay you.
  • Alternative Document loans: These used to be called Low-doc loans, and they’re designed for borrowers who have difficulty providing traditional documentation of their income. These loans typically have higher interest rates than traditional home loans, but they may be a good option for self-employed borrowers who have a good credit history and a strong track record of repayment. This is where you really have to understand the opportunity cost of the project or purchase, you’re wanting the money for.

Factors That Lenders Will Consider When Assessing Your Application

When assessing your application for a fully documented property loan, lenders will consider a number of factors, including:

Your income: Lenders will want to see that you have a steady and reliable source of income. Depending on what sort of loan you’re applying for and the lender and your business structure, you may need to provide

  • 2 years Individual Tax Return and matching Income Statements and Notices of Assessment 
  • 2 years company/trust Tax Returns AND the matching Financial Statements for BOTH financial years
  • At least the 2 most recent Business Activity Statements (BAS) – Depending on the lender, they may want 12 months.
  • 3-6 months Business Banking Statements – Again, depending on the lender, some will want 12 months
  • 2 most recent payslips with 6 months year to date if you pay yourself a Salary/Wage. If the year to date isn’t available, then add the LAST payslip from the previous financial year to the list.

Your Credit Score: These days, most lenders will look at your Credit Score which notes how many credit enquiries you’ve had and your payment history on all current financial liabilities. It’s good to keep in mind that your Credit Score can actually impact the interest rate of a loan as well.

Your ATO Portal: Some lenders will also want you to provide this information as well, making note that some lenders won’t lend money to you if you’ve got a Tax Debt even if there’s a payment plan in place.

Your Industry: Lenders may also look at the industry you operate in and make some assessments of the economic and environmental factors that may impact your ability to repay the loan.

Your Experience: Lenders also want to understand your experience as a self-employed borrower. Things like how many years’ experience you’re been in your industry, in business and management and the advisors you’ve got in your team.

Conclusion:

Getting a property loan as a self-employed borrower can be challenging, but it’s not impossible. By understanding the different types of property loans available and the factors that lenders will consider, your return on investment (ROI) and the opportunity cost you can increase your chances of getting approved for a loan.

Where to go from here:

If you’re thinking of applying for finance for property or anything else for that matter, we encourage you to contact us for a chat sooner rather than later. Being prepared is the best for anyone, but even more so if you’re self-employed.

Why would you do this? We can help you understand what options are available to you and/or what you need to do to get yourself to a place where you’ve got options.