Home Loans for Sole Traders

Being your own boss is great, and you won’t have to worry about getting a home loan as a sole trader.

Last updated on April 20th, 2022 at 11:00 am by Thomas Perrotta

Compare home loans for sole traders

If you’re a sole trader, you might think that the process to being approved for a home loan is complicated by the way you’re paid compared to the more traditional PAYG employee. This isn’t the case at all, and we’ll unpack how to find the right home loan for you in this comprehensive guide.

What are my options for a home loan if I’m a sole trader?

There are two main options open to sole traders when it comes to home loans: full documentation (full doc) home loans and low documentation (low doc) home loans. It’s important to know the differences between the two before entering the application process, so let’s unpack them here.

Full doc home loans

These are the most affordable home loans available to sole traders. What makes a full doc home loan “full doc” is the nature of documentation that you’re able to provide to your lender. In this type of loan, a sole trader will be able to show their previous two years’ tax returns, both personal and business, and business financial statements, as well as a Notice of Assessment.

Full doc home loans generally offer self-employed workers lower interest rates and greater loan-to-value ratios (LVR) of up to 95%, meaning that you won’t have to pay as large a deposit if you don’t wish to. In many respects, a full doc home loan serves as simply another name for a standard home loan, except designed for sole traders. As such, we recommend sole traders apply for a full doc home loan wherever possible.

Low doc home loans

If you don’t have access to these documents, however, you can apply for a low or no doc home loan. These loans won’t require you to submit your tax returns, for example, but lenders may ask for different documents such as Business Activity Statements (BAS), unaudited profit and loss statements and a letter of declaration from your accountant confirming that the income you have listed is true and correct.

Because of the lack of documentation in comparison to full doc home loans, LVRs are lower, with maximums ranging between 60% to 80% depending on the lender. You’ll also probably have to pay Lender’s Mortgage Insurance (LMI) on any amount over 60%. However, the smaller number of documents allow the application process to become more streamlined and faster.

How should I compare home loan interest rates and fees if I’m a sole trader?

The interest rates you’ll find on low doc home loans will generally be slightly higher than those of standard home loans, with full doc home loans generally meeting the standard interest rates available to Australians. However, you’ll still find competitive and affordable interest rates amongst lenders in the low doc home loan space. The table below outlines how interest rates can affect you depending on the type of self-employed home loan you go with.

Full doc home loan Low doc home loan
Comparison rate (interest + fees)
3.5%
4.5%
LMI
$0
$4,985
Monthly repayment
$2,245.22
$2,533.43
Amount paid on top of principal
$308,280.44
$412,033.56
Total saving (comp. rate + LMI)
$108,738.12
-

*Approximate figures calculated on a $500,000 home loan over a 30-year period with a 25% deposit

It’s easy to get swept up by an attractive interest rate above anything else, though, so make sure that, while it plays into your decision-making, your choice isn’t based solely on this factor. You’re more likely find that a loan’s LVR requirement could rule itself out of your list of options, rather than its interest rate.

Lenders’ policies when it comes to fees will vary, but it’s an unfortunate reality that you’ll have to pay them no matter what. What you can do is try to minimise the amount you’ll pay in fees over your loan by going for lenders who offer cheaper or are willing to waive fees like your application and monthly fees.

What documents do I need for my home loan as a sole trader?

Lenders offering low doc home loans are likely to require some or all of these. Find out if you have the right documents here.

Full doc home loans:

  • Tax returns – You’ll have to provide both your personal and business tax returns from the two most recent financial years
  • Business financial statements – Lenders will also ask for the previous two years’ statements as a means of ascertaining the financial situation and overall performance of your company
  • Notice of assessment – This is a notice from the ATO outlining your taxable income and any owed tax or potential refund that your business is eligible for
 

Low doc home loans (a combination, or all, of the following):

  • Business activity statements – Used for businesses to keep track of the GST they earn and spend over a monthly and/or yearly basis. Lenders will ask for the last 12 months’ worth of statements
  • Unaudited profit and loss statements – These statements list your income, costs and net income over a financial quarter or year
  • Letter of declaration – A document signed off by your accountant stating your overall income
  • ABN and registered business name
  • Self-Declaration – You self-declare what your annual income is.

Which features should I consider when comparing the best home loans for sole traders?

  • Extra repayments: where possible, you should try to ensure you’re able to make extra repayments without incurring a fee. Many self-employed workers have periods of high income compared to others, so you may wish to make contributions here.
  • Mortgage offset account: with this feature, you can make interest-free contributions to your principal total whenever you wish.
  • Lower minimum LVR: if you’re applying for a low doc home loan, try to find a lender with less restrictions on LVR when it comes to having to pay LMI (e.g., 70% instead of 60%).
  • Redraw facility: if you’re in a pinch, a redraw facility can allow you to take funds from any extra repayments you’ve made.

Frequently asked questions about home loans for sole traders

Can I convert my low doc home loan into a full doc home loan?

Yes – some lenders will allow you to refinance your low doc home loan into that of a full doc after a period of repaying your loan. If you’ve been able to gather the documentation required for a full doc home loan in the time that you’ve been repaying your low doc loan, such as tax returns from the two most recent financial years, you can look to refinance.

How long do I have to be working as a sole trader before I can be approved for a home loan?

Generally, sole traders must have run their business for a minimum of 12 months to two years as a requirement for lenders. While banks are very unlikely to lend if you’ve been a sole trader for less than the minimum period, there are lenders who are willing to work around this timeframe if you are still in the same industry.

Can I still be approved for a home loan if I’m a sole trader without the required documentation for a low doc loan?

Probably not, but there are no doc home loans that some lenders will offer to sole traders. However, these are quite rare in Australia and often limited to specialist lenders. Because the perceived risk is greater to a lender in a no doc home loan, interest rates and fees are higher than low doc home loans, while the maximum LVR is lower across the board at an average maximum of 40%.

Where do I find the best home loans for sole traders?

Savvy is a great place to start, as you can use our financial comparison tools to assess which home loans are right for you. It’s also worth contacting lenders who you’re interested in applying to in order to find out whether they accept home loans from sole traders and/or with less documentation.

Do low doc home loans for sole traders contain the same rate options to choose from as standard home loans?

Yes – if you’re self-employed and looking to secure a home loan, you’ll have the choice of fixed or variable rate home loans.