Self-Employed Home Loans

What you need to know about getting a home loan as a self-employed Australian and comparing your options with Savvy.

Last updated on May 5th, 2022 at 09:13 am by Cate Cook

Compare self-employed home loans

Years ago, the big banks wouldn’t lend to the self-employed, but that’s all changed now with online lenders increasing the competition in the home loan market. You can take an in-depth look at the best home loans for self-employed workers, the documentation you’ll need and all the features on offer right here with Savvy. Comparing home loans here offers an opportunity to find out about the lowest interest rate loans in Australia and the best deals available for you.

How do self-employed home loans work?

In the past, sole traders and small business owners used to struggle to get home loans.  This was because self-employed people couldn’t provide payslips (and sometimes had fluctuating incomes) and lenders deemed them to be riskier borrowers as a result.

However, as more people became self-employed in Australia, online lenders (followed by the banks) altered their application processes to accept other proof-of-income documents besides PAYG payslips.  Home loans for self-employed Australians (also known as sole trader home loans in Australia) are now essentially the same as standard loans and can come with low interest rates and a variety of loan features to choose from.

If you’ve been self-employed for over two years and have a good credit history, you can confidently apply for some of the best home loans for self-employed people available in Australia.  To prove your income to the lender, you’ll need to provide two years’ worth of tax returns for yourself and your business, plus your ABN and ACN certificates.

What are low doc self-employed home loans?

Home loans for workers self-employed for under two years are now also available.  However, they may be harder to get approved and you may need to apply to an online lender who specialises in what’s called ‘non-conforming’ or ‘specialist’ loans.  If you’ve been self-employed for under two years, be prepared to pay a higher interest rate and fees on your low doc loan.

For these loans, you’ll still need to prove your ID and supply asset and debt information.  The alternative documentation you may be asked to provide for a low-doc loan could include Business Activity Statements, bank statements, profit and loss statements and ABN and GST registration documents.  Some lenders will also ask for a letter from your accountant verifying your financial position.

How much will I need for a deposit on a sole trader home loan?

Sole trader or self-employed mortgages for people with full documentation usually require a deposit of 20% of the value of the property you wish to purchase.  However, there are full doc home loans available for self-employed Australians which only require a 5% or 10% deposit.  These loans are known as 95% or 90% loan-to-value ratio (LVR) loans, respectively, because the lender is prepared to lend 90% of the value of the property to be purchased.  Because the lender is providing a higher proportion of the total cost of the property, they’re taking on more risk and will often charge you a higher interest rate.

Such high LVR loans often come packaged with the need to take out Lenders Mortgage Insurance (LMI), which is an insurance premium which protects the lender in case of mortgage default.  LMI can amount to thousands of dollars and can add significantly to the overall cost of the mortgage. 

Self-employed Australians applying for a low doc loan should expect to be asked to provide an absolute minimum of 20% to 30% deposit, and also to take out Lenders Mortgage Insurance, which will be calculated based on the loan amount.  In most cases, LMI would be required for any loan above 60% LVR (or less than a 40% deposit).

Another option for those who can’t provide a sufficient deposit is a guarantor mortgage.  This type of mortgage is offered to borrowers who have a family member who is prepared to act as a guarantor for their loan.  The guarantor has to be prepared to accept responsibility for the repayment of the loan in the event the borrower is unable to make their home loan repayments.  They’ll have to offer the equity in their own home as security for the new mortgage.  If the guarantor has a very good credit history and plenty of free equity in their home, lenders may even be willing to lend up to 100% of the cost of the property in some cases.

What loan features are available with self-employed mortgages?

Offset accounts can save you plenty of money by reducing the interest you pay on your loan. Each dollar you deposit in your offset account will reduce the interest you pay on a dollar-for-dollar basis. For example, if you have a $200,000 mortgage and $20,000 in your offset account, you’ll only pay interest on $180,000.

If business is booming and you have some spare cash, making extra repayments is a great way to reduce the size of your mortgage by paying it off more quickly and saving on the interest you pay.  Look for a loan where you’re able to make as many additional repayments as you like without additional fees.

If business slows down, you might find yourself in need of extra funds, which you may be able to access if your home loan offers a redraw facility. Redraws allow you to access any additional payments you’ve made into your home loan account.  However, you may have to apply to your lender for permission to redraw.

The standard loan repayment frequency for a home loan is monthly, meaning you pay 12 instalments per year.  However, if your lender allows you to pay your mortgage fortnightly or even weekly, you can save yourself thousands in interest. Calculate how much you could save using Savvy’s weekly or fortnightly repayment calculator.

Some lenders allow you to ‘take your mortgage with you’ when you move house, which is known as loan portability.  This can be a very useful additional feature because it means you don’t have to discharge your mortgage and re-apply for a loan if you want to move house; you just ‘port’ your loan from the first property to the second.  You’ll just be charged a low administration fee, which is usually less than $250.

Frequently asked questions about home loans for the self-employed

How much more interest is charged on a self-employed home loan?

If you can provide a full two years’ worth of financial information and have a good credit score, you should be able to find a very competitive mortgage and won’t pay extra interest just because you’re self-employed.  It’s only if you are wanting a low doc loan that interest rates may be higher.

Am I able to take out a construction loan as a small business owner?

Yes – if you’re wishing to build a new property rather than buy an established home, construction loans are available to self-employed people who may be small business owners.  These loans differ from conventional home loans in that the money is paid directly to the home builder in stages as construction progresses. However, self-employed borrowers with full documentation will also find that these loans are virtually the same as they are for non-self-employed borrowers.

Can I refinance my low doc home loan to a full doc loan?

Yes – if your low doc loan came with a higher interest rate and your business continues running to the point that you have two years’ worth of tax returns to show, you can refinance to a full doc loan and take advantage of lower interest rates.  Savvy can help you find those lowest home loan interest rates by comparing home loans and presenting the comparison information to you in a clear, easy-to-read table.

Can I use a self-employed home loan for an investment property?

Yes – just like standard owner-occupier home loans, most investment property home loans are open to self-employed applicants as long as they have the required two years of both personal and business tax returns.  As always, investment loans come with a slightly higher interest rate than standard home loans.

Do I have to apply for a self-employed home loan with an online lender?

No – these days, almost all lenders accept applications from self-employed borrowers who have at least two years’ worth of personal and business tax returns.  However, there are often substantial variations between the interest rates and loan features on offer, so it’s well worth comparing home loans with Savvy to find the lowest interest rate available.

Can I get an interest-only self-employed home loan?

Yes – you can get an interest-only mortgage if you’re self-employed.  However, be aware that some lenders may charge you a higher interest rate and you’re not reducing the principal sum you borrow, so you may well end up paying more overall for your loan compared to one where you do reduce the principal as well as paying the interest on the loan.  Interest-only mortgages are most useful for those looking to purchase a property to be sold in the next few years or are looking for short-term relief with cheaper initial repayments.