Do you know what banks want before you buy?

Banks assess your income differently when you run your own business

Lenders calculate your borrowing capacity using your taxable income, not your turnover. If you write off $40,000 in deductions to reduce tax, that same $40,000 disappears from what the bank thinks you earn. Two years of tax returns showing consistent or growing profit after expenses is the standard pathway, though self-employed home loan structures exist for buyers who don't fit that mould.

Consider a buyer who runs a consulting business with $180,000 in turnover but claims $65,000 in expenses. The bank sees $115,000 in assessable income, not the full revenue figure. That difference directly affects the loan amount you can access. Some lenders will add back non-cash deductions like depreciation, but the starting point is always what you declared to the ATO.

Your loan structure should match how you manage cash flow

Owner-occupied home loans come in three main formats: variable rate, fixed rate, or split. A variable rate moves with the market and gives you full access to an offset account. A fixed interest rate locks your repayments for one to five years but limits extra payments and removes offset functionality. A split loan divides your borrowing across both, letting you hedge rate movements while keeping some flexibility.

Most self-employed buyers favour variable or split structures because income fluctuates. An offset account linked to your loan reduces interest on the full balance while keeping cash accessible. If you park $50,000 in offset against a $500,000 loan, you only pay interest on $450,000. That matters when you need to cover tax bills, supplier payments, or slow months without touching a redraw facility that some lenders scrutinise during refinancing.

Pre-approval confirms your borrowing capacity before you commit

A home loan pre-approval gives you a conditional loan amount based on your income documentation and credit position. It's not a guarantee, but it tells you what you can borrow and flags any issues before you sign a contract. Pre-approval typically lasts 90 days and requires the same paperwork as a full application: tax returns, business financials, proof of deposit, and identification.

In our experience, buyers who skip pre-approval either overpay because they don't know their limit or lose deposits because they can't settle. If you're self-employed, pre-approval also reveals which lenders will assess your income favourably. Not all banks treat sole traders, company directors, and partnerships the same way. Knowing that upfront saves time and removes guesswork from your property search.

LVR determines whether you pay Lenders Mortgage Insurance

Your loan to value ratio is the loan amount divided by the property value. Borrow $400,000 to buy a $500,000 property and your LVR is 80%. Most lenders charge Lenders Mortgage Insurance above that threshold, adding thousands to your upfront costs. LMI protects the bank if you default, not you, and it's calculated on a sliding scale. At 85% LVR you might pay $8,000. At 90% LVR that figure can double.

Some lenders cap LVR at 80% for self-employed borrowers unless you can demonstrate strong financials or have been trading for several years. Others will go to 90% or 95% but apply stricter income assessment or higher interest rates. If you're close to the 80% threshold, a larger deposit or a lower purchase price can remove LMI entirely. The alternative is capitalising the premium into your loan amount, which increases your debt and ongoing repayments.

Rate discounts depend on your loan size and deposit

Advertised home loan rates are rarely the rates you'll pay. Lenders offer interest rate discounts based on your loan amount, LVR, and whether you bundle other products like insurance or transaction accounts. A $600,000 loan at 70% LVR will attract a better rate than a $300,000 loan at 90% LVR, even with the same borrower. The margin between standard variable rates and discounted rates can sit between 0.30% and 1.00%, depending on the lender.

Self-employed applicants sometimes receive smaller discounts than PAYG borrowers, particularly if they're using low doc home loans or bank statement home loans to prove income. That's not universal, but it's common enough to factor into your rate comparison. If one lender offers a lower headline rate but applies a smaller discount, you could end up paying more than a competitor with a higher standard rate and deeper discount. Compare the actual rate on your loan documents, not the marketing material.

Loan features affect how you manage the debt over time

Portability lets you transfer your loan to a new property without refinancing or paying discharge fees. That's useful if you plan to upgrade or relocate within a few years. A redraw facility allows you to pull out extra repayments you've made above the minimum, though some lenders restrict access or charge fees. Offset accounts work differently because the cash never enters the loan, so it's always available without approval.

Interest-only repayments reduce your monthly cost by deferring principal repayments for a set period, usually one to five years. That structure suits buyers who expect income to increase or plan to renovate and sell quickly. Principal and interest repayments build equity from day one and reduce your loan balance with every payment. If your goal is long-term ownership and financial stability, principal and interest is the default. If you're managing cash flow or holding the property short-term, interest-only can make sense.

Application timing matters when you're self-employed

Most lenders want your most recent two years of tax returns, which means applying mid-financial year with last year's return may not reflect your current income. If your profit jumped this year but you haven't lodged your return yet, you're stuck using the older, lower figure. Some brokers can work with accountant-prepared financials or BAS statements to bridge that gap, but not all lenders accept them.

If you're buying within six months of lodging a strong return, time the application to use that updated income figure. If your income dropped or you restructured the business recently, consider whether waiting another year improves your borrowing position. There's no advantage to applying early if the numbers don't support the loan amount you need. The property market might move, but so does your income documentation, and the latter controls what you can borrow.

You can access home loan options from multiple lenders without applying to each one

Working with a self-employed mortgage broker gives you access to loan products across dozens of lenders without submitting separate applications. Brokers assess your income, deposit, and borrowing capacity once, then match you to lenders whose credit policy suits your structure. That's particularly relevant for self-employed buyers because different banks assess sole traders, companies, and trusts in different ways.

A broker also knows which lenders add back depreciation, accept one year of trading history, or waive LMI at higher LVRs for certain professions. That information isn't published on comparison sites, and calling each lender individually wastes time. One application, multiple options, and you only proceed with the lender whose rate, features, and approval terms suit your situation.

Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions