How to Get a Home Loan When You're Self-Employed

If you're self-employed and looking to buy in Mentone, you'll need to show your income differently to someone on a salary.

Most lenders ask for two years of tax returns and financials prepared by your accountant. They use these documents to calculate your assessable income, which forms the basis of your borrowing capacity. Some lenders will accept one year if your income is strong and consistent, though this narrows your options. The serviceability buffer still applies at 3.0 percentage points above the product rate, so a lender assessing your application at a variable rate will test your ability to repay at that rate plus the buffer.

What Documents You'll Actually Need

You'll lodge two years of individual tax returns, two years of business financials (profit and loss, balance sheet), your most recent Notice of Assessment from the ATO, and business activity statements covering the most recent 12 months. If you operate through a company or trust structure, you'll also need the entity tax returns and financials for the same period. Lenders verify your ABN status and may request additional documents if your income fluctuates between years or if you've recently changed business structure.

Consider a buyer who runs a landscaping business in Mentone and reported taxable income of $72,000 and $68,000 over the past two financial years. The lender averaged the two years, applied their standard loading for add-backs such as depreciation, and assessed serviceability on an income figure of around $75,000. With a 15% deposit saved and no other debts, the buyer was approved for an owner occupied home loan with a major lender at a variable rate. Settlement took place without requiring lenders mortgage insurance, as the deposit cleared the 80% loan-to-value threshold.

How Lenders Calculate Your Income

Lenders don't just use the taxable income shown on your Notice of Assessment. They add back certain deductions such as depreciation, home office expenses, and motor vehicle costs to arrive at a higher assessable figure. The exact treatment varies between lenders. Some apply a standard percentage reduction to account for business operating costs, while others assess line by line. If your income has declined from one year to the next, many lenders will take the lower figure or apply further discounting. If it has increased, they may still average across both years unless the increase is clearly sustainable.

Building Your Deposit While Self-Employed

You can access the Australian Government 5% Deposit Scheme if you're buying your first home in Mentone, provided the purchase price sits within the Victorian cap of $950,000 for capital cities and regional centres. The scheme allows you to purchase with a 5% deposit without paying lenders mortgage insurance, as Housing Australia guarantees up to 15% of the property value to the participating lender. Self-employed buyers are eligible under the same terms as employees, with no income caps applying under the scheme. Applications go through a participating lender, and the lender still assesses your income using the same two-year financials and tax return requirements.

If you're using the First Home Super Saver Scheme, you can withdraw up to $50,000 of eligible super contributions to put toward your deposit. This works particularly well if you've been making concessional contributions through your business, as those contributions are taxed at 15% rather than your marginal rate. You need to obtain a determination from the ATO before signing a contract, so start the process early.

Which Lenders Work With Self-Employed Borrowers

All major banks and most non-major lenders will assess self-employed applications, but their policies differ. Some require a minimum two years of continuous self-employment in the same industry. Others will accept one year if you were previously employed in the same field and can show that your business income exceeds your previous salary. A smaller group of lenders offer low-doc or alternative documentation options for borrowers who can't provide full financials, though these products typically carry higher interest rates and require a larger deposit, often 20% or more.

If you've recently transitioned from employment to self-employment, expect most mainstream lenders to decline your application until you pass the 12-month mark in business. This is one area where speaking with a mortgage broker in Mentone can help, as brokers have access to lenders with more flexible policies and can match your situation to the right product without you applying multiple times and collecting declines.

Fixed, Variable, or Split Loan Structures

Self-employed borrowers have the same access to fixed rate, variable rate, and split loan structures as employees. A variable rate gives you full access to an offset account, which is useful if your income arrives irregularly throughout the year. Parking your business income in an offset account linked to your home loan reduces the interest charged daily without locking the funds away. If you prefer rate certainty, a fixed rate protects you from rate rises for the fixed period, though you'll lose offset functionality on that portion and may face break costs if you repay early.

A split loan lets you fix part of your borrowing and keep the rest variable. This gives you some rate protection while maintaining access to offset and retaining flexibility to make extra repayments on the variable portion. There's no single right answer, and the structure that works depends on how your income flows and whether you value certainty or flexibility more.

Pre-Approval Before You Start Looking

Getting home loan pre-approval before you attend auctions or make an offer gives you a clear picture of your borrowing capacity and shows vendors you're a serious buyer. For self-employed borrowers, pre-approval usually requires the same full documentation set as a formal application, including tax returns, financials, and ATO Notices of Assessment. Conditional approvals are common, where the lender approves your income and capacity but makes the final approval subject to a satisfactory valuation of the property you choose.

Pre-approval is typically valid for three to six months depending on the lender, though they may ask for updated documents if your circumstances change or if the approval nears expiry. If you're buying in Mentone, where properties close to the train station and foreshore can move quickly, having your finance sorted before you bid or sign a contract removes one of the main points of uncertainty in the purchase process.

Call one of our team or book an appointment at a time that works for you.

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