Home loan applications for people who are self-employed, or business owners, have unique requirements – here’s what you need to know.
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Guide to home loans for self-employed
Self-employed home loan applications look a little different
More and more Australians are working for themselves, either running small businesses or freelancing. If you’ve jumped on the self-employment bandwagon and you’re thinking about applying for a home loan, here’s what to consider.
Your experience
If you’ve been working for yourself for less than two years, a lender will likely want to see proof that you have prior experience in the industry. It helps to have old payslips on hand, as well as references from previous employers.
Documents you’ll need to provide
When you apply for a home loan, lenders will ask for proof of your financial status, including your income. For people who don’t work for themselves, this is usually in the form of Pay As You Go (PAYG) payslips. For sole traders, freelancers and business owners, it could look like:
- Business tax returns
- Personal tax returns
- A recent notice of assessment from the ATO
- Bank and financial statements from your business.
If you can’t provide the documents listed above (for example, because your business is less than two years old) lenders might accept the following instead:
- Proof of ABN and GST registration for your business
- Business Activity Statements (BAS)
- Personal tax returns older than two years
- A reference from an accountant verifying your financial legitimacy
- Year to date business financial statements.
What you need to be cautious of
As a self-employed borrower, the pool of lenders available to you might be slightly smaller. If you are successful in securing your loan, some lenders might charge you a higher interest rate or request a lower Loan to Value Ratio (LVR).
Types of home loans
There are a range of choices for self-employed borrowers – you could go with a variable or fixed rate, a simple or complete package, principal and interest or interest only repayments. The right product for you depends on your needs and what your objective is – perhaps you want a loan that offers credit cards and multiple offset accounts, or maybe you’d prefer something simpler. Whether you want to build or buy will also feed into this decision. Check out the basics below.
Variable rate home loans
With a variable rate loan, the rate can go up and down with the current interest rates, meaning your repayments can go up and down too.
Benefits of variable rate home loans:
- Freedom to make unlimited extra repayments to help pay your loan down faster if surplus funds are not withdrawn
- Flexibility to redraw your extra repayments any time through online banking
- Offers 100% offset account with our variable rate home loans, which can help you save on home loan interest
- If you're making principal and interest repayments, you can set up weekly, fortnightly or monthly repayments to suit your pay cycle
- You can choose to make interest only repayments for a set period of time
- Can be used as a construction loan if you’re building your home.
Things to consider:
- Your loan repayments could increase if your interest rate increases
- Variations in your repayments make it harder to budget.
Fixed rate home loans
If you’re worried about the impact of fluctuating interest rates on your ability to pay your loan, a fixed rate loan might suit you better. Repayments are based on an interest rate that’s fixed for an agreed term (one to five years). Essentially, you’re opting for certainty over flexibility.
Benefit of fixed rate home loans:
- Fixed repayments make it easier to budget
- Enjoy the peace of mind that comes with consistent repayments with one of our fixed rate home loans
- Offers 40% offset account to help you save on home loan interest, plus other features to suit your needs with our Complete Fixed Home Loan
- You can make extra repayments of up to $10,000 each year to potentially reduce your loan term
- You can opt to pay interest only for an approved period of time
- If you're making principal and interest repayments, you can set up weekly, fortnightly or monthly repayments to suit your pay cycle.
Things to consider:
- You won’t benefit from lower repayments if interest rates fall
- Break fees may apply if you decide to break the loan during the fixed rate period
- Redraw is not available during the fixed rate period. Once the fixed rate term ends, you can request to access any surplus funds
- At the end of the Fixed Rate period, you may be able to fix a new rate for a further period, or your home loan will revert to a variable rate as per your home loan contract.
Tools and calculators for self-employed borrowers
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