Understanding the basics of self-employed home loans

Getting approved for a home loan when you run your own business means working with lenders who look beyond payslips.

Most traditional lenders assess your borrowing capacity using tax returns that show your net profit after every legitimate deduction you've claimed. The problem is that those deductions reduce your taxable income, which then reduces what the bank thinks you can afford to borrow. You might be earning $120,000 a year in revenue, but if your accountant has written off $40,000 in vehicle costs, home office expenses, and depreciation, the lender sees $80,000. That gap between what you actually earn and what appears on your tax return is where most self-employed applicants hit a wall with the major banks.

There are lenders who will assess your application differently. Some will use your business income before deductions, others will accept bank statements instead of tax returns, and a handful will consider contracts or invoices as evidence of ongoing work. Knowing which structure suits your situation makes the difference between rejection and approval.

Why most banks knock back self-employed applications

Banks assess self-employed borrowers as higher risk because your income fluctuates and there's no employer guarantee behind your earnings.

An accountant working in Carlton who invoices $9,000 one month and $14,000 the next creates uncertainty for a lender trying to calculate monthly repayment capacity. Add in the fact that most self-employed applicants claim every deduction available to reduce their tax bill, and the income figure the lender uses for serviceability drops below what you'd need to borrow enough for a property in the Carlton area. The result is either a declined application or a loan amount that won't get you into the market.

Low doc and alt doc loans for Carlton buyers

Low doc loans allow you to prove your income using bank statements rather than full tax returns.

These products suit self-employed buyers who've been operating for at least 12 months and can show consistent deposits into a business account. The lender reviews your last three to six months of statements and calculates an average monthly income. If your bank statements show $11,000 coming in each month after business expenses, that's the figure they'll use for borrowing capacity assessment. Interest rates on low doc products sit roughly 0.3% to 0.8% higher than standard variable rates, and most lenders cap the loan amount at 80% of the property value to avoid lenders mortgage insurance.

Alt doc loans go a step further by accepting accountant declarations, BAS statements, or signed contracts as proof of income. A builder in Carlton with a 12-month construction contract worth $180,000 could use that contract as the basis for their application, even if their most recent tax return shows lower income due to a quieter prior year. These products typically require a deposit of at least 20%, and the lender will still want to see ABN registration, GST registration if your turnover exceeds the threshold, and evidence that your business is active and solvent.

Full doc loans using net profit or gross income

Some non-major lenders will assess your full tax returns but add back certain deductions to increase your serviceability.

Depreciation, home office costs, and vehicle expenses are common add-backs because they reduce your taxable income without affecting the cash you actually have available each month. A Carlton-based consultant earning $95,000 in net profit after claiming $18,000 in deductions might be assessed on $113,000 instead, which increases the amount they can borrow by $60,000 to $80,000 depending on other debts and expenses. Not every lender offers add-backs, and the ones that do have different policies on which deductions they'll accept. This is where a broker with access to multiple lender panels makes a tangible difference, because the difference between one policy and another can be the difference between conditional approval and a decline.

Another option is a stated income loan, where the lender uses your gross business revenue rather than net profit. These are less common now than they were before the royal commission, but they still exist for applicants with strong financials, significant assets, or a large deposit. The trade-off is a higher interest rate and sometimes a lower maximum LVR.

What lenders actually want to see from self-employed applicants

Two years of tax returns, an ABN that's been active for at least 12 months, and consistent revenue patterns across your bank statements.

Lenders want to see that your business isn't brand new and that your income isn't trending downward. If your net profit was $105,000 two years ago and $78,000 last year, the lender will use the lower figure or decline the application outright. If your profit has grown or stayed stable, you're in a stronger position. Most lenders also want a letter from your accountant confirming that your business is a going concern and that there are no outstanding tax debts or ATO payment arrangements in place.

For Carlton buyers looking at properties close to the railway station or near Rockdale Plaza, the difference between a 10% deposit and a 20% deposit changes which lenders you can access. At 10%, you'll be limited to low doc products with higher rates and LMI premiums that can add $15,000 to $25,000 to your upfront costs. At 20%, you can access near-prime and some prime lenders with rates closer to what a PAYG employee would pay. If you're considering investment property in the area, you'll need at least 20% deposit regardless of your employment type, because investor low doc lending has tightened significantly since the DTI limits came into effect in February.

How to structure your finances before you apply

Separate your personal and business banking at least six months before applying.

Lenders want to see clean bank statements with business income coming into a business account and personal expenses coming out of a personal account. If your mortgage repayment, grocery spending, and supplier invoices are all mixed together in one transaction history, the lender's serviceability calculator will treat every outgoing as a personal expense, which reduces what you can borrow. Setting up a dedicated business account and running all revenue and business costs through that account makes the assessment clearer and faster.

Pay yourself a regular wage if your business structure allows it. A director of a small company who pays themselves $6,000 a month creates a consistent income pattern that lenders can assess more confidently than someone who draws irregular lump sums whenever cash flow allows. If you've been taking ad-hoc drawings, talk to your accountant about moving to a salary structure at least three months before you apply.

Keep your tax returns up to date and lodged on time. A self-employed applicant with overdue tax returns or an active payment plan will be declined by every major lender and most non-majors. If you're behind, get current before you start the home loan application process.

How a broker helps self-employed buyers in Carlton

A broker with a full lender panel can place your application with the lender whose policy fits your situation instead of forcing your situation to fit a single lender's policy.

One lender might decline your application because your net profit dropped 8% last year. Another might approve it because they allow add-backs on depreciation and you're applying at 75% LVR with no other debts. The difference isn't your financial position, it's the lender's credit policy. Brokers who work regularly with self-employed clients know which lenders assess using gross income, which ones accept single-year returns for applicants who've just switched from PAYG to self-employment, and which ones will consider upcoming contracts that aren't yet reflected in your tax return.

For Carlton buyers, local market knowledge also matters. A broker familiar with the St George and Bayside area understands property values, knows which streets are in higher demand, and can give you realistic guidance on what you can afford before you start looking. That saves time and stops you from falling in love with a property you can't finance.

Call one of our team or book an appointment at a time that works for you. We work with self-employed buyers across Carlton and the wider St George area, and we'll tell you exactly which lenders will consider your application before you hand over a single document.

Frequently Asked Questions