Self Employed Loans

Home loans for people who are self-employed are the most difficult to understand of all home loan products. In the first place, public perception is that self-employed people have difficulty obtaining a home loan simply because they are self-employed. The real difficulties emerge because self-employed people find it hard to satisfy the documentation required by banks.

First of all it needs to be clarified that home loans for salaried borrowers and self-employed borrowers are exactly the same. There is no difference between the home loans themselves, they are charged at the same rate of interest, they have the same features and benefits and they all have the same criteria to satisfy.

But, whereas a wage earner can easily prove income by providing a letter from their employer confirming their employment, or by providing payslips and PAYG summaries, a self-employed borrower has to supply full tax returns and full financial statements usually provided by an accountant for the last two years of operation in order to satisfy the minimum requirements of most lenders.

The Australian Taxation Office does not require businesses to lodge tax returns until March or later of the year following the end of the financial year and so a self-employed applicant may not necessarily have all the paperwork when the bank asks for it. This is where the difficulties emerge and where self-employed applicant's can find it difficult to obtain a loan.

That is not to say that banks don't lend to self-employed people. Far from it. Many businesses keep their paperwork up-to-date and stage their home loan applications so that they are in a position to provide all the information bank requires. Accountants can also assist businesses in this regard by providing supportive statements to a bank in respect of businesses solvency and trading position.

But before we go any further let's look at what a self-employed person has to supply to a bank before they qualify for a home loan.

The last two full financial year taxation returns plus full financials of the business.

Where taxation returns are more than six months old, BAS statements are also required.

Explanation of depreciated assets and whether the business plans to replace them over very short term.

Explanation of existing loan facilities and the likelihood of future borrowings.

Most of this information can be easily supplied, especially with the assistance of an accountant. It is nevertheless a daunting prospect and it is no wonder that self-employed borrowers turn to other alternatives when it comes to borrowing for a home purchase.

As you will soon see, existing businesses find it easier to get a loan than businesses that are under two years old. Most banks shy away from lending money to any self-employed applicant who has not have at least two years experience.

Lo Doc loans have been a popular product in the home loan industry for the last 10 years because, subject to some conditions, self-employed borrowers are not required to provide paperwork confirming income when they apply for a loan.

Although these loans may have been abused in the past, recent changes to the product design means that this is less likely and banks are slowly coming around to the idea that Lo Doc loans are here to stay.

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