Key takeaways:
Self-employed income can limit lender options at purchase, but that may change over time.
An Aussie Broker can help explain how different lenders assess self-employed income.
Current, consistent financial records can make a refinance application more straightforward.
An Aussie Broker can compare available options from a panel of 25+ lenders
When Tanika Drew and her partner, Travis, bought a new home and kept their previous property as an investment, Travis's sole-trader income had limited their lender options.
The couple secured their original finance through a non-conforming lender, making the purchase possible. Non-conforming lenders can make it easier to have self-employed income assessed, but the trade-off is often a higher interest rate than a borrower may be offered through a standard lender.
At the time, it was the option available to them. But circumstances, documentation and lender appetite can all shift over the life of a loan, and what worked at purchase may not remain the most suitable option later.
What changed when Travis's income got a second look
A referral to Aussie Broker, Vicki Fraser prompted Tanika and Travis to check whether their existing loans still suited their circumstances.
Vicki worked through Travis's self-employed income documentation, examined both loan structures and compared how participating lenders may assess the couple's position.
"Being a sole trader, Trav had a lot more documentation and evidence he had to supply to get this over the line," Tanika said.
"At first, I was quite stressed about whether it was the right thing, but she answered all my questions."
According to Vicki's loan comparison, the new arrangements moved the couple from a non-conforming lender to a mainstream lender and reduced their combined required repayments.
Being placed with a non-conforming lender at purchase reflects a lender's assessment at that point in time. It isn't a permanent classification, and it doesn't mean every future application will be assessed the same way.
Much of what Vicki needed from Travis is common to any self-employed application, so it's worth understanding what lenders typically look for.
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Why self-employed income can complicate a loan application
Employees can generally demonstrate their income through regular payslips. Self-employed applicants are often asked for more information to build the same picture.
Dr Adrian Raftery, chartered accountant and director at Mr Taxman, said the type and amount of documentation required can vary between lenders, but tax returns are usually the starting point.
"Obviously, tax returns are a very basic source of information," Raftery said.
"If they're running their own business, they'll probably have business activity statements. Generally, both of those will be required for two years."
Depending on the borrower and lender, requested documents may also include business and personal bank statements, profit and loss statements and balance sheets.
Raftery said lenders will typically want the numbers to tell a consistent story across every document.
"You need to make sure that your bank statements and business activity statements reconcile back to your tax returns," he said.
"If you've got all of that ready at the start, it makes the submission a lot easier. There's no going back and forth."
He said self-employed borrowers weighing up tax planning and an upcoming loan application may need to consider both together, rather than assuming a lower taxable income is only ever a benefit.
"You've got the situation where you want to pay as little tax as possible, and to do that, get your income as low as possible," Raftery said.
"However, if you do really aggressive tax planning, you're not going to show the desired income that's required for lending purposes."
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What an Aussie Broker considered beyond the interest rate
When Vicki first reviewed the couple's loans, she wanted to understand what their current lender arrangement was, and whether it still reflected what was available to them.
Rather than focusing only on the existing interest rates, Vicki reassessed Travis's income, the liabilities attached to both properties and how a different lender might view the same self-employed income their current lender had originally assessed.
That reassessment mattered because a lender's view of self-employed income isn't fixed. It can shift as a business builds a longer trading history, as documentation improves, or simply because different lenders weigh the same numbers differently.
Vicki also identified that the interest-only period on their investment loan was approaching its end, an issue not directly related to their employment type but one that fed into the same overall comparison.
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Could your self-employed income mean different options are now available?
A loan that was suitable at the time of purchase may not remain the only option as a business becomes more established, tax returns build a longer history, or documentation improves.
A home loan review does not mean a self-employed borrower has to refinance. It may help identify whether their current documentation now supports a wider range of lenders than it did previously.
An Aussie Broker can review an existing loan and compare available options from participating lenders based on a borrower's current income position, rather than the position at the time the original loan was arranged.
Before a review, self-employed borrowers may wish to gather current tax returns, business activity statements, bank statements and business financial statements.
For Travis and Tanika, the lesson wasn't that a non-conforming loan was the wrong choice at the time. It's that a loan chosen at purchase doesn't have to be the final word on what's available to a self-employed borrower down the track.
