Self-Employed Home Loans: How to Get Approved with Low Doc

Being self-employed has plenty of advantages. You set your own direction, build something of your own, and often earn more over time than you could as an employee. But when it comes to getting a home loan, self-employed borrowers often find the process harder.

The issue isn't usually that you can't afford a loan. It's that your income doesn't fit neatly into the boxes lenders use for salaried employees. This guide explains how lenders look at self-employed income, what low doc loans are, and how to give your application the best chance.

When an employee applies for a loan, the lender checks recent payslips and an employment letter. It's simple and predictable.

For self-employed borrowers, the lender needs to understand your business. They want to know:

• How long you've been in business
• How much the business earns, and whether it's stable
• How much of that income you actually take home
• Whether the business has debts or tax obligations

Income from a business can vary from year to year, and accountants often structure things to reduce tax. That's sensible from a tax point of view, but it can make your income look lower on paper than it really is.

Many self-employed people can get a standard home loan, often called a "full doc" loan. Lenders typically ask for:

• Two years of personal tax returns and notices of assessment
• Two years of business tax returns and financial statements
• An ABN that has been registered for at least two years

Some lenders will accept just one year of tax returns, especially if you've been in the same industry for longer, or if your most recent year shows strong income.

If you can provide these documents and your income looks solid, a full doc loan is usually the best option. You'll typically get better rates and more choice of lenders.

Add-backs

Some business expenses can be "added back" to your income when lenders assess you. Common add-backs include:

• Depreciation
• Interest on loans being refinanced
• One-off expenses that won't happen again
• Superannuation contributions above the minimum

Not every lender treats add-backs the same way, which is one reason using a broker can make a big difference.

A low doc loan is designed for self-employed borrowers who can't easily provide full financial documents, or whose tax returns don't reflect their current income.

Instead of tax returns, low doc lenders use alternative ways to verify income, such as:

• Business activity statements (BAS), usually for the last 6 to 12 months
• Business bank statements
• An accountant's letter confirming your income
• A signed income declaration

When low doc loans make sense

A low doc loan may suit you if:

• Your tax returns aren't up to date
• Your business has grown quickly and last year's returns don't show your current income
• You've recently changed business structure
• Your income is strong but irregular

The trade-offs

Low doc loans can be very useful, but they usually come with:

• Slightly higher interest rates than full doc loans
• Larger deposit requirements, often 20 to 30 percent
• Fewer lender options, as not all lenders offer them

Many borrowers use a low doc loan as a short-term step, then refinance to a full doc loan once their tax returns are up to date.

Most lenders want to see at least two years of self-employment. Some will consider one year, especially if:

• You worked in the same industry as an employee before going out on your own
• Your first year shows strong, steady income
• You have a solid deposit

If you've been self-employed for less than a year, options are more limited, but not impossible. A broker can help you find lenders who look at your full history, not just your time with an ABN.

Here's what you can do before applying to make the process smoother:

1. Keep your tax returns up to date

This is the single most helpful thing you can do. Up-to-date returns open up more lender options and better rates.

2. Keep business and personal finances separate

Using a separate business account makes it easier for lenders to understand your income and expenses.

3. Talk to your accountant early

If you're planning to buy, let your accountant know. They can help you understand how your returns will look to a lender. A broker can also speak to your accountant directly, with your permission.

4. Pay down tax debts

Outstanding ATO debts can make lenders nervous. If you have one, a payment plan in place and up to date is better than nothing.

5. Reduce other debts and limits

Credit card limits, car loans and business loans all reduce your borrowing capacity. Consider reducing them before you apply.

6. Save a solid deposit

A bigger deposit gives you more options, especially for low doc loans.

• Applying directly with lots of lenders. Each application can appear on your credit file.
• Assuming you'll be declined. Many self-employed people qualify more easily than they expect.
• Choosing a low doc loan when full doc is possible. You may be paying more than you need to.
• Not explaining unusual items. A one-off loss or big expense needs context. A broker can present this clearly.

Working with self-employed borrowers is a big part of what our team does. Many of our clients are business owners, tradies, contractors and professionals running their own practices.

We help by:

• Reviewing your financials the way a lender would
• Finding lenders whose policy suits your situation
• Working with your accountant to present your income clearly
• Choosing between full doc and low doc options
• Planning a path to a better rate later, if you start with low doc

We help self-employed clients across Melbourne's south-east, including Chadstone and Oakleigh.

Learn more about our self-employed and low doc loans, or book a free chat to talk through your options.