Self employed first home buyer: how to get a home loan

If you are a self employed first home buyer, you can still buy your first home. The main difference is how you prove your income. Where an employee shows payslips, a self employed first home buyer usually shows business tax returns, notices of assessment and recent business activity statements. Lenders look at the same things they look at for everyone, a stable income, a genuine deposit and the ability to repay, they just read your income from your business records instead of a wage. Whether you may qualify depends on your circumstances and each lender’s criteria.

This guide walks through what lenders ask for, how a self employed home loan first home application is assessed, and the steps you can take to get ready. It is general information only, not personal advice.

What counts as self employed

You are generally treated as self employed if you earn your income through your own business rather than as an employee. That includes sole traders, partners in a partnership, and people who own and work in their own company. If you run a business under an Australian Business Number (ABN), a lender will usually class you as a self employed first home buyer rather than a pay as you go employee.

The label matters because it changes the paperwork. A first home buyer ABN holder is asked to show that the business income is steady and likely to continue, not just that it existed for one strong year.

How lenders assess a self employed home loan first home application

Lenders want to see that your income is real, stable and enough to cover repayments alongside your other commitments. For a self employed applicant, that picture is usually built from your business and personal tax records rather than payslips.

Most lenders ask self employed applicants for two years of personal and business tax returns and the matching notices of assessment, although the exact requirement varies by lender and your situation. Some lenders may consider one year of returns, or use a different method, depending on your circumstances and their criteria. Recent business activity statements (BAS) can also help show how the business is trading more recently.

A few things tend to shape the outcome:

• Length of time in business, since longer trading history gives a lender more to assess
• Whether income is rising, flat or falling across the years reviewed
• How much of the business profit is left after expenses, because lenders generally assess your taxable income, not turnover
• Other debts, such as a car loan, credit cards or a business overdraft

Because lenders read income differently for self employed applicants, two people with similar earnings can be assessed differently. This is one reason many self employed buyers choose to work with a broker who can match them to a suitable lender.

Documents you may need

Exact requirements depend on the lender, but a self employed first home buyer is commonly asked for:

• Two years of personal tax returns and notices of assessment
• Two years of business tax returns (for a company or trust, the business financials)
• Recent business activity statements
• Business bank statements
• Identification and details of your deposit and savings
• Details of existing debts and ongoing expenses

Having these ready before you apply tends to make the process smoother. For a full first home buyer document list, see our Documents needed home loan application guide.

The deposit and lenders mortgage insurance

The deposit rules are the same whether you are self employed or an employee. A common savings goal for a house deposit is 20% of the purchase price, plus enough to cover buying costs, according to Moneysmart. A deposit of 20% or more also lets you avoid paying lenders mortgage insurance (LMI).

Lenders mortgage insurance is insurance that protects the lender, not you, and is generally required when your deposit is less than 20% of the property value. It is a one off cost that can be added to your loan. As a first home buyer you may also be able to use a government scheme that supports eligible buyers to purchase with a smaller deposit, subject to the scheme’s own eligibility rules. Our Buying with 5 percent deposit guide explains how a smaller deposit can work.

To see how a smaller deposit changes things, you can try the how much can you borrow calculator before you start house hunting.

Interest rates and loan features to weigh up

Once your income is assessed, the loan itself works the same way it does for any first home buyer.

When comparing loans, the comparison rate is a single figure showing the cost of a loan that includes the interest rate and most fees, which helps you compare loans on a like for like basis. Features to weigh up include an offset account, a redraw facility and a line of credit, along with application and ongoing fees. Even a small difference matters over time, an interest rate even 0.5% lower could save you thousands of dollars over the life of a loan, according to Moneysmart.

Steps to get ready as a self employed first home buyer

Working with a mortgage broker

A self employed first home buyer often has a more involved income story, so a broker can help. A mortgage broker deals with banks or other lenders to arrange a home loan, works out how much you may be able to borrow, presents loan options and can manage the application through to settlement. Mortgage brokers must act in your best interests when suggesting a loan for you. Lenders generally pay mortgage brokers a commission for distributing their products, so you do not usually pay the broker directly. Our First home buyer mortgage broker guide covers what a broker does in more detail, and you can read about getting ready in our Home loan pre approval first home buyer guide.

Talk to the team at Finance Lab

If you are a self employed first home buyer and you are not sure how your income will be assessed, the team at Finance Lab can talk through your situation, explain what records you may need and help you compare options across lenders.

Frequently asked questions