Simple hacks to get approved for a home loan

Getting approved for a home loan when you're self-employed comes down to how you present your income.

Lenders assess self-employed applicants differently than wage earners, and understanding that difference determines whether your application succeeds or stalls. Most lenders want to see two years of tax returns showing stable or increasing income, but how they calculate that income varies significantly between lenders. Some average your taxable income across two years. Others add back depreciation and certain business deductions. A few will consider your latest year's figures if they show strong growth. The lender you approach and how your accountant structures your tax returns will directly affect how much you can borrow.

How Lenders Calculate Self-Employed Income

Lenders typically start with your taxable income, then add back non-cash deductions like depreciation, and subtract any one-off income that won't continue. If you run a business through a company or trust, they'll assess distributions, director's fees, and retained earnings. The calculation method changes based on your business structure.

Consider a graphic designer in North Warrandyte operating as a sole trader. Their tax return shows a taxable income of $68,000 after claiming $12,000 in equipment depreciation and $8,000 in home office deductions. One lender might assess their income at $68,000. Another might add back the depreciation, giving them $80,000 of serviceable income. That $12,000 difference translates to roughly $60,000 more borrowing capacity. The structure of your tax return and the lender's policy both matter, and not every broker knows which lenders add back which deductions.

If your business is incorporated, some lenders will assess retained earnings as potential income even if you haven't drawn them personally. Others won't. This becomes significant for buyers who leave profit in the business for tax planning purposes but now need that income recognised to secure a home loan.

Why Two Years of Tax Returns Isn't Always Mandatory

Most lenders want two years of financials, but several will accept 12 months if your ABN is older and your accountant provides a profit and loss statement showing consistent trading. This applies when you've been in the same industry for years but only recently registered your ABN, or when you've transitioned from employment to contracting in the same field.

A builder who worked as an employee for eight years, then registered an ABN and started quoting jobs independently, applied for a loan after 14 months of self-employment. Their accountant prepared a detailed profit and loss statement covering that period, along with a letter confirming the applicant's industry experience and client pipeline. The lender accepted one full tax return plus interim financials and approved the application at a standard variable rate. The outcome relied on showing continuity of income and industry expertise, not just the length of time since ABN registration.

This approach works when your business income is similar to or higher than your previous employment income, and when you can demonstrate ongoing contracts or repeat clients. It won't work if you've switched industries or if your income has dropped significantly since becoming self-employed.

Structuring Your Application Around Lender Appetite

Not all lenders treat self-employed income the same way, and matching your circumstances to the right lender changes your borrowing capacity and interest rate outcome. Some lenders are cautious with sole traders but flexible with company structures. Others are the opposite.

If your income fluctuates seasonally, look for lenders that assess your last two years' average rather than requiring consistent month-to-month earnings. If you've had a strong year followed by a weaker one, find a lender that weights recent performance more heavily. If you've recently expanded your business and your taxable income is temporarily lower due to reinvestment, you need a lender that considers cash flow and revenue, not just net profit.

The difference isn't subtle. A landscaper in North Warrandyte earning $95,000 in their first year and $72,000 in their second year due to purchasing a new truck and equipment would be assessed at an average of $83,500 by some lenders. Others would assess them at $72,000, using the lowest or most recent year. That's a $55,000 difference in borrowing capacity before you factor in whether depreciation gets added back.

Lender selection matters as much as how your accountant prepares your financials, and the two need to work together.

Using a Split Loan to Manage Rate Risk

Self-employed borrowers often benefit from splitting their loan between fixed and variable components. A portion on a fixed rate provides repayment certainty during quieter trading periods, while the variable portion allows you to make extra repayments when income is stronger without triggering break costs.

A typical structure might be 50% fixed for three years and 50% variable with an offset account. During months when income exceeds expenses, surplus cash sits in the offset account and reduces interest on the variable portion. During slower periods, the fixed portion ensures repayments remain predictable. This approach also keeps your options open if you want to refinance part of the loan before the fixed term ends.

If your income is genuinely uneven across the year, a split loan gives you stability without locking you into a structure that penalises you for getting ahead. It also means you're not trying to predict where rates will be in three years, because you're only committing half your loan amount to a fixed term.

What to Do Before You Apply

Before submitting your application, get your last two years of tax returns, your ABN registration details, and your last 12 months of business bank statements ready. If you operate through a company or trust, include financial statements and any accountant-prepared profit and loss reports. Lenders will also want to see your personal bank statements to verify living expenses and savings history.

If your tax returns show lower income because you've structured your affairs for tax efficiency, talk to your accountant about whether restating your financials or providing a supplementary declaration will help. Some lenders accept adjusted figures if your accountant provides a signed letter explaining the add-backs. Others won't. Knowing this before you apply avoids wasting time with the wrong lender.

If you're buying in North Warrandyte or nearby areas like Kangaroo Ground or Wattle Glen, consider how the semi-rural nature of the area affects property valuations. Some lenders apply stricter loan-to-value ratios for properties on larger blocks or in bushfire-prone zones, which can reduce how much they'll lend or trigger Lenders Mortgage Insurance at lower thresholds. This doesn't mean you can't borrow, but it does mean your deposit size and lender choice become more important.

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

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