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Self-employed home loan requirements, document by document

Self-employed applications are not harder because the income is weaker. They are harder because the evidence is scattered. Here is what a lender asks for, and what each document is doing.

Dave Pham

Dave Pham

Head Broker

· 8 min read

A business owner working through paperwork with a broker, assembling the evidence a self-employed application needs

An evidence problem, not an income problem

A salaried borrower hands over two payslips. A self-employed borrower hands over two years of returns, a set of financials, a tax portal statement and a trust deed, then answers questions about a director loan account. None of that means the income is weaker. It means the assessor has to reconstruct it.

Everything below is about making that reconstruction easy. A file an assessor can follow gets a decision. A file they cannot follow gets a request for more information, and then another one, and the settlement date moves.

A salaried application

  • Two recent payslips and a year-to-date figure.
  • One employer, one income stream, one number.
  • Income verified in a single step, often on the day.
  • Very little left for an assessor to interpret.

A self-employed application

  • Two years of returns, financial statements, notices of assessment and a tax portal statement.
  • Income arriving as wages, dividends, distributions, retained profit, or a mix of all four.
  • An add-back schedule that has to hold up line by line.
  • A structure the assessor has to understand before a single figure means anything.

The document list, by structure

What a lender asks for depends on how the business is held. The personal side is common to all of them.

Typical full-doc requirements. Individual lender policy varies and changes.
StructureBusiness documents usually requiredPersonal documents usually required
Sole traderTwo years of individual tax returns including the business scheduleNotices of assessment for both years, identification, statements for existing commitments
PartnershipTwo years of partnership returns and financial statementsTwo years of individual returns and notices of assessment covering your share
CompanyTwo years of company returns and financial statements, plus a current ASIC extractTwo years of individual returns and notices of assessment covering wages and dividends
TrustTwo years of trust returns and financial statements, plus the trust deedTwo years of individual returns and notices of assessment covering distributions

On top of that, most lenders want three to six months of business bank statements, evidence of ABN and GST registration, and an integrated client account statement from the ATO portal. Some will also ask your accountant to confirm the financials provided are the ones actually lodged.

Tax returns
Two years
Notices of assessment
One per year
Business bank statements
Three to six months
ATO portal
Client account statement
Registrations
ABN and GST
Company or trust
ASIC extract or deed

Some lenders will accept one year

Two years is the standard. A number of lenders will assess on the most recent single year where the business is established, and the conditions usually look like this.

  • An ABN registered for a minimum period, commonly measured in years rather than months.
  • GST registration for a similar period, where the business is required to be registered.
  • The most recent return lodged and assessed, not simply prepared by the accountant.
  • Evidence the business existed and traded in the prior period, even if it traded under a different structure.
  • Often a lower maximum loan-to-value ratio than the two-year equivalent.

One-year policy is genuinely useful for a business that has just passed its second birthday, or one that restructured and lost its comparative history. It is not a route around a year that went badly. Where the most recent year is the weaker one, lenders will generally use it anyway.

How the income figure is actually calculated

Lenders do not simply take net profit off the return. They rebuild a serviceable income, then apply their own averaging rule, and the averaging rule is where two lenders diverge most sharply on the same set of accounts.

  • Many take the lower of the most recent year or the two-year average. This is the conservative default and it is the most common.
  • Some will use the most recent year where income increased, often capped so that the increase cannot exceed a set percentage over the prior year.
  • Where the most recent year is lower, expect the most recent year to be used rather than the average. Declining income is read as the current position, not as a blip.

Two good years, and the figure that has to carry the loan

A year of growth rarely counts for as much as it feels like it should. Income that rose is usually averaged, income that fell is usually taken at the most recent year, and the lower of the two is what services the debt either way.

Illustrative projection only. Averaging rules differ by lender and change. Not a quote and not an offer of credit.

View as a table
Amount
Year one, as assessed$96,000
Year two, as assessed$132,000
What the loan is serviced on$114,000
Trading figures under review, standing in for the way a lender rebuilds a self-employed income rather than reading it off a payslip
The averaging rule is where two lenders diverge most sharply on identical accounts. It is worth knowing which rule a lender applies before the file goes anywhere near them.

Salary drawn from your own company is not the whole picture either. If the company retained profit after paying you, most lenders will consider that retained profit available to you, provided ownership is clear and the financials support it. That single point often moves borrowing capacity more than anything else in the file.

Add-backs, and where they stop

An add-back is an expense in the accounts that did not represent cash actually leaving your hands, or that will not continue. Adding it back lifts serviceable income. Policies differ on every line, which is why identical financials can produce materially different capacity at two lenders.

  • Depreciation and amortisation, because they are non-cash.
  • Additional superannuation contributions above the compulsory rate, where they are genuinely discretionary.
  • Interest on debts being paid out by the new loan, because that expense disappears at settlement.
  • One-off or non-recurring expenses, with evidence that they were genuinely one-off.
  • Net profit retained in a company you own.
  • Certain lease and hire purchase expenses, where the underlying commitment is being separately assessed.

How an add-back schedule rebuilds an income

The figure on the tax return is where the assessment starts, not where it lands. Most of the distance between $85,000 and $134,000 is money that never left the business, and every line of it has to be evidenced before an assessor will count it.

Illustrative projection only. Which items a lender will add back varies, and what your own accounts genuinely contain is a question for your accountant. Not a quote and not an offer of credit.

View as a table
ComponentAmountShare
Net profit on the return$85,00063%
Depreciation added back$18,00013%
Interest on debts being paid out$9,0007%
Profit retained in the company$22,00016%
Total$134,000100%
A set of balance scales, standing in for the judgement about which expenses can legitimately be added back and which cannot
Every add-back has to survive on its own. An assessor will accept a schedule they can follow and strike out a line nobody can explain.

Where it stops matters just as much. Ordinary running costs, wages to genuine staff, rent and recurring vehicle costs are not add-backs. An accountant should prepare the schedule and be ready to support it. If a line cannot be explained on its own, it will not survive credit.

Add-back
An expense in the accounts that did not take cash out of the business, or that will not continue, added back to lift serviceable income.
Non-cash expense
Depreciation and amortisation. The deduction is real for tax purposes and no money left the account.
Retained profit
Profit the company kept after paying you. Most lenders will consider it available to you where you own the company and the financial statements show it.
Director loan account
Money drawn from the company and recorded as a loan to you rather than as income. Assessors treat drawings and income as different things, because they are.

The ATO portal statement, and why it decides files

More lenders now ask for an integrated client account statement, and it answers three questions in one document.

  1. 01Whether lodgements are current. Overdue returns or activity statements are visible immediately, and most lenders will not proceed until they are lodged.
  2. 02Whether there is a tax debt, and how large it is.
  3. 03Whether a payment plan exists and whether it has been kept. Missed instalments on a plan read as badly as arrears on a loan.

There is a straightforward point in this. Disclose a tax balance at the start. A balance the assessor finds for themselves changes the tone of the whole file, and it is one of the more common reasons a self-employed application collapses late. A tax balance is also not an automatic decline. Often it is the reason for the refinance in the first place.

What sinks a self-employed file

  • Unlodged returns. Nothing else can be assessed until they are in, and this is usually the longest item to fix.
  • An undisclosed tax balance or payment plan.
  • Dishonours and overdrawn days running through the business trading account.
  • A structure change mid-period with no explanation of how the old entity relates to the new one.
  • Drawings taken through a director loan account and then declared as income. Those are different things, and an assessor will treat them as different.
  • Personal spending run through the business account, which inflates expenses and muddies the living expenses assessment.
  • Applying at four lenders in a month and collecting four enquiries that stay on file for five years.

Ninety days out

  1. 01

    Get everything lodged

    Income tax returns, activity statements, and anything outstanding with the state revenue office. This is the highest-value action available and it takes the longest, so start here.

  2. 02

    Ask your accountant for the add-back schedule

    In writing, with figures the financials support. It becomes the spine of the application and the answer to most credit questions.

  3. 03

    Pull the integrated client account statement

    Look at it before a lender does, so nothing in it is a surprise to you.

  4. 04

    Separate personal and business spending

    Three clean months on the trading account changes how the statements read and removes a category of question entirely.

  5. 05

    Pull your credit file from all three bureaus

    Fix anything wrong now rather than in the middle of an approval, when there is a settlement date pressing on it.

  6. 06

    Choose one lender and apply once

    A panel exists so a file goes to the policy that fits it. Applying broadly is the opposite of that, and every enquiry is visible for five years.

WeL’nd works with business owners as a matter of routine, including the ones carrying tax debt. Nothing here is tax advice, credit advice or an offer of credit, and all lending is subject to lender assessment and approval. For anything about how your accounts are prepared or how a deduction was treated, speak to your registered tax agent or accountant.

FAQ

Questions people actually ask

If yours is not here, ask it. We would rather answer the awkward one early than have you find out later.

1300 015 267
Can I get a home loan with one year of tax returns?
Some lenders will assess on a single year where the ABN and GST registration have been in place for a minimum period, the most recent return is lodged and assessed, and there is evidence the business traded in the prior period. Expect a lower maximum ratio than a two-year application. Policy varies by lender and changes.
Do I need two years of ABN registration?
Most policies set a minimum registration period, and two years is common for standard full-doc assessment. Shorter periods are accepted by some lenders in specific circumstances, often where the borrower worked in the same industry beforehand and can evidence it.
Will an ATO payment plan stop me getting a home loan?
Not automatically. What matters is whether the plan is disclosed, whether the instalments have been met, and whether servicing still works with the instalment counted as a commitment. A plan being paid on time reads very differently to one in arrears, and some lenders will consider paying the balance out at settlement.
Does the lender use my company profit or just the wage I pay myself?
Most lenders will consider retained company profit as well as the salary you draw, where you own the company and the financial statements support it. This is one of the largest differences between a well-prepared self-employed application and a poorly prepared one.
How far back do lenders look at business bank statements?
Three to six months is typical for a full-doc application, and up to twelve months for alt doc. Assessors read them for consistency of deposits, dishonours, overdrawn days and any commitment that does not appear elsewhere in the application.
Is a low doc application easier than a full doc one?
It is different, not easier. Alt doc trades tax returns for BAS, bank statements or an accountant’s declaration, and it costs more in pricing and caps the ratio lower. Where two years of returns exist and support the loan, full doc is the better application.

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Dave Pham, Head Broker at WeL'nd

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