Self Employed

Banks interpret different types of lending in various ways, and understanding these distinctions can help you make better financial decisions. For example, traditional home loans are usually evaluated based on steady, documented income, whereas self-employed individuals may face a different assessment process that considers factors like business cash flow, assets, and overall financial health.

Banks may also treat investment loans differently from owner-occupied loans, often considering rental income potential and the property’s long-term value. Understanding these differences is crucial because they directly impact loan approval, interest rates, and repayment terms. Knowing how banks assess various lending types allows you to approach the process with confidence, ensuring you choose the right loan product for your unique circumstances.

If you're self-employed, securing a home loan can feel more complicated — and the lender you choose makes a big difference. The good news is that many lenders recognise the growing number of Australians running their own businesses and offer home loans specifically tailored for self-employed borrowers. These lenders may accept alternative documentation, such as BAS statements, bank statements, or accountant letters, and may be more flexible if your income fluctuates seasonally.

The bad news? Not all lenders are as understanding. Major banks often have stricter documentation requirements and may average your income over the past two years, which can hurt your borrowing capacity if one year was lower due to reinvestment or COVID-related downturns. Some lenders may also apply higher interest rates, larger deposits, or limit loan features like offset accounts for low-doc applications. That’s why it’s crucial to compare not just the rate, but also the loan flexibility, fees, and how each lender treats self-employed income. A mortgage broker who specialises in self-employed clients can help match you with lenders who see your business success — not just your paperwork.

If you're self-employed, banks assess your income differently compared to PAYG (salaried) applicants. Most lenders require at least one to two years of personal tax returns and business financials, including profit and loss statements and balance sheets. They typically average your income over the past two financial years — or use the lower figure if your most recent year shows a drop. This can reduce your borrowing power if your income has grown recently or if you've reinvested heavily into your business.

Some lenders also take into account add-backs like depreciation, interest expenses, or one-off costs to give a more accurate view of your earning capacity.
For newer businesses or those without full financials, low-doc loans are an option, but they usually require a larger deposit and come with higher interest rates. In all cases, lenders want to see that your income is stable, consistent, and able to support loan repayments over time. Having a good accountant, up-to-date financials, and a broker who understands self-employed lending can make a big difference in getting your loan approved.

Banks in Australia have clear preferences when it comes to assessing home loan applications, and understanding these can improve your chances of approval. Generally, they favour borrowers with stable, ongoing income, a strong credit history, and a clear savings pattern. PAYG employees are typically seen as lower risk because their income is consistent and easy to verify. For self-employed applicants, lenders prefer to see at least two years of tax returns and stable earnings. Banks also like to see a clean credit report, low levels of existing debt, and a demonstrated ability to save often referred to as “genuine savings.”

A lower loan-to-value ratio (LVR) (meaning a bigger deposit) is also preferred, as it reduces the bank’s risk. Lenders are cautious about applicants with multiple short-term debts, irregular income, or frequent credit enquiries. While every bank has its own policies, these preferences help explain why one lender may approve you and another may not. Working with a broker can help match your profile to a lender whose preferences align with your situation.