by David Rootsey
Branch Manager, Commonwealth Bank Port Douglas


This question was put forward to me by one of my regular readers and it’s a question that probably many people in the area struggle with.

“How do you get a mortgage if you’re self-employed? 

Several of my friends have tried and failed and yet on the face of it they look like quite good applicants with some money in the bank.  I appreciate the banks are overly cautious nowadays having run into difficulty with their previously cavalier attitude towards lending but there doesn’t seem to be any hard and fast rules concerning how self employed company owners can crack the code!

This is a common question that I face day in and day out. Now before I dive too far into the requirements around self-employed mortgage applications, I have to clarify that I can only speak from one bank’s perspective, not for others who may be more or less stringent than my fine financial institution.  I will also only speak from the perspective of owner occupied or investment residential property.

To be approved for a home loan whether you are self-employed or you are employed by someone else there are a number of criteria to meet to be eligible for a home loan. There are two criteria that are more important than the rest, these being:

1) Can the Bank have adequate security to lodge a mortgage against?

The bank will lend up to 80% of the value of the security with no additional cost. The bank can lend up to 95% of the value of the security, but when they do, it takes insurance out to protect itself, this is called Lenders Mortgage Insurance. This protects the Bank in case of default of repayments and this cost is passed onto the borrower.  The difference can be made up from existing equity in another property or in savings.

2) Can you afford the loan repayments?

This is the point that differentiates self employed and those who are employed by others. When you are employed by someone else you get paid a wage, tax gets taken out, superannuation gets paid and you have a take home pay. The bank can look at a payslip for gross year to date figures and determine what your regular income would be. From this the bank can calculate whether it believes your income is enough to support a loan.

For self-employed we could compare the above person’s gross income as being your net profit (incomes less expenses before tax). The Bank will verify your income through one of two ways; you can either be “standard doc” or “low doc”.

“Standard Doc” can be supported through accountant prepared financial statements and through your annual tax return for yourself and your business. “Low Doc” can be supported through the last four submitted BAS statements and a Statutory Declaration stating your income’s assets and liabilities. Both ways for supporting your income are based on at least one year’s business history and the Bank prefers two year’s history. 

There are other ways of proving to the bank that your earnings are adequate to afford loan repayments, if you have any questions about your individual circumstances feel free to email me and I can give you some more clarity.

Borrowing from the bank does rely on a few other factors that aren’t discussed here, but if you can prove that you can afford the repayments based on your net profit and you have enough of a deposit either made up of existing equity or cash savings then you are a long way towards buying residential property with the bank.