Home loans for self-employed business owners
If you’re a business owner seeking a loan for a home or investment property, you should know the process of securing a home loan can be different for business owners, especially when compared to people working as PAYG employees.
Self-employed business owners are required to show distinctive documentation to demonstrate financial capacity. This is because the ‘paper trail’ that a PAYG employee can generally provide (such as a regular payslip) may be difficult to produce if you’re self-employed. At Hatcher, we specialise in educating our clients on what banks and lenders require to view a business owner’s mortgage application favourably:
What proof is required for a loan application?
As a self-employed loan applicant, you will need to prove the income you earn from your business is sufficient to sustain any future mortgage repayments. Banks and lenders typically favour those businesses that have been operating for 2 to 3 years. To have the greatest chance of securing a loan for either an owner-occupied home, or an investment property, you will need:
- Your last 2 years’ individual and business income tax returns.
- Your last 2 years’ Notice of Assessment forms from the ATO.
- Your Australian Business Number (ABN) and related identifying information.
In short, a bank or lending institution will ask for specific information about your current income, assets, liabilities, and credit history. Your application should show any prospective lenders how you successfully earn a living through your business activities.
If you’re unsure how to begin preparing your loan application as a self-employed business owner, have a chat with the team at Hatcher today. We can provide guidance that relates to your personal circumstances.
What about businesses that are less than 2 years old?
Australian banks have a fairly conservative approach to lending and need to ensure that your business has the appropriate tax return and NOA paper trails to prove your business is both profitable and sustainable.
That said, businesses that are less than 2 years old may be able to apply for a low doc home loan through an alternative lending institution. In this case, you will need to provide other supporting documentation such as:
- Your last 12 months of Business Activity Statements (BAS).
- Your last 12 months of business bank statements.
- A letter from an accountant or similarly qualified professional who can confirm your income.
It’s important to know that while low doc home loans will require less supporting documentation, you should also be prepared to:
- Pay a larger deposit (typically around 20% of the proposed property purchase price.)
- Pay a higher interest rate (varies from lender to lender, and with market conditions.)
- Take out Lender’s Mortgage Insurance (to protect the bank’s investment in your home.)
No matter what your personal circumstances look like, applying for a home loan can be a complex (and sometimes stressful) experience. For support you can trust, speak with the team at Hatcher today.
What type of home loans are available?
The type of home loan you choose may depend on factors such as the specific property you wish to purchase, along with your financial goals. For example, investment property loans tend to be interest only. On the other hand, if you’re seeking a mortgage to purchase a long-term family home, a loan that combines both fixed and variable interest rates may be more suitable.
Australian banks and lending institutions offer a competitive range of lending products that are designed to meet the needs of almost every customer. Hatcher can help you to evaluate your financial goals both short and long term, and then weigh up your options.
- It may be useful to know that banks can look more favourably on a business owner who is operating in a professional field where they have significant prior employment history. If this sounds like you, ask our experts how to showcase your financial history in a favourable light.
- The amount that a bank may be willing to loan you will depend on factors such as your current income, assets, and liabilities. Lenders will also assess your preferred property and base their calculations on a certain percentage of the total property value.
- There are many types of home loans available on the Australian market today. Depending on your individual circumstances, you may wish to consider a mortgage that includes special features such as an offset account, redraw facility, or extra line of credit. Each loan type varies and has specific rules that apply, so chat to our team to help get you started.
- In short, yes. Applying for a loan as a self-employed individual is always a rigorous process regardless of whether you’re seeking an investment property or family home. To successfully qualify for an investment property loan, your income must be verified by a bank or lender as detailed above.
Disclaimer: Hatcher Advisory and its subsidiaries, together with its owners, managers and employees have endeavoured to ensure the information on this website is accurate. However, you must undertake your own research and seek advice from your financial advisor, broker or accountant to ascertain its application to your specific circumstances. We do not take responsibility for any outcomes based on this material.