Home Loans for Self-Employed Individuals with Less than 2 Years of Experience

Typically, lenders require a minimum of two years of self-employment for consideration of your self-employed income when applying for a home loan. However, if your self-employment history is less than two years, securing a home loan is still possible. Lenders willing to accommodate individuals with under two years of self-employment often stipulate a prerequisite of having worked in the same industry for a duration exceeding two years.

Securing a loan becomes challenging for those with less than a year of self-employment, as providing necessary income documents becomes problematic. In such cases, certain specialty lenders might consider income from your previous employment as a safety net, acknowledging the potential return to that role in the event of business challenges.

Low doc loan may be an option

Certain lenders specialize in providing low doc loans tailored for business owners, the self-employed, or individuals with an Australian Business Number (ABN), even if the ABN registration is less than 2 years old.

Typically, many lenders prefer businesses with a trading history of at least 2 years to assess the business’s viability and profitability. However, securing a low doc loan with an ABN is still feasible, offering an alternative for those who may not meet the traditional trading period requirements.

First Royal has successfully assisted numerous Australian entrepreneurs in obtaining their ideal home loan deals. Our mortgage specialists offer tailored solutions to guide you seamlessly through the homeownership journey.

Loan Limits for Self-Employed Individuals:

Self-employed individuals can borrow up to:

– 95% of the property value with comprehensive income verification and tax returns for the past two years.

– 80% – 90% of the property value for those applying under a low-doc home loan.

– Up to 80% of the property value for individuals self-employed for less than a year.

Most lenders on our panel typically require at least two years of tax returns and financial statements. However, some lenders may consider a one-year tax return report or alternative reliable proof of income.

Minimum Self-Employment Period for Loan Qualification:

While most lenders mandate a self-employment period of over two years for eligibility, some may consider applications with at least one year of self-employment, depending on the financial situation. If you’ve been self-employed for less than one or within 1 to 2 years, contact us at 03 8564 8556. Our panel includes lenders accommodating shorter self-employment experiences with reliable income records.

Income Evaluation by Lenders:

Lenders scrutinize your previous tax returns to assess and forecast your business’s stability throughout the loan term. Factors like decreased income in the last two years may lead to increased caution from banks and non-bank lenders.

Lenders employ various methods to evaluate your income, including referencing your lowest income in two years, considering your latest income for determining borrowing power, averaging both years, and potentially adding back certain expenses indicated in your tax returns.

Discuss your financial situation with First Royal to present the most favourable application for approval, leveraging the expertise of our mortgage experts.

Considerations for Self-Employed Home Loan Applications:

Self-employed borrowers should consider the following when applying for a home loan:

– All income from self-employment is treated as pay-as-you-go (PAYG).

– A business should have been operating for at least two years.

– NOAs, financials, and tax returns may not be required if you generate your own income.

– Bank statements for the past six months are typically necessary.

Evaluation of Tax Returns:

Lenders request your previous tax returns as they serve as a benchmark for your income. This helps them assess the potential growth and stability of your business earnings, although the methods vary among lenders. Some may consider your lowest earned income, while others use an average based on your historical self-employed earnings.

Certain lenders focus solely on your most recent financial year tax return to determine your servicing capacity. A detailed examination of your tax return allows lenders to identify additional income sources, often referred to as add-backs.

Add-backs encompass expenses not considered regular operational costs for your business. While some lenders permit the inclusion of these add-backs in your income, enhancing your servicing capacity, not all lenders follow this practice. Examples of add-backs include:

– Depreciation on taxable assets

– One-off expenses

– Extra contributions to super funds

– Retained net profits in a company

– Interest

– Leasing costs

– Rent for non-continuous premises

– Bad debt write-offs

– Non-recurring expenses

Each lender employs its own criteria in evaluating tax returns, and understanding the nuances of add-backs can impact your overall eligibility and loan servicing potential.

For accurate guidance on leveraging your expenses in your self-employed home loan application, consult with our mortgage brokers at First Royal.

Latest Tax Returns Requirement:

Lenders typically request tax returns for the recently completed financial year when applying in March or April. Until that period, you can submit tax returns from the prior year. However, lenders evaluate cases individually, and some may accept older tax returns as an exception, beneficial for those who experienced a challenging year or recently entered business.

How Lenders View Self-Employed Borrowers:

Self-employed borrowers are often viewed as higher risk by lenders due to the inherent instability of income compared to employed individuals. Certain industries, such as construction, may carry higher perceived risks than others like accounting or law firms. While major banks tend to be meticulous and conservative, First Royal offers a range of lenders with more lenient rates for self-employed individuals.

Secure the Best Self-Employed Home Loan with First Royal:

Securing the right home loan as a self-employed individual involves meticulous documentation and informed decision-making. Our mortgage specialists, well-versed in self-employed home loans, understand the criteria and can help you navigate the process, saving time and money.

At First Royal, we provide real solutions for real people. Consult with our senior mortgage brokers regarding your financial situation, and let us guide you through the application process to land your dream home efficiently.