How Self-Employed Income Is Calculated for Home Loans
One of the biggest challenges self-employed borrowers face is understanding how lenders calculate their income. Unlike PAYG applicants, your borrowing power isn’t based on a payslip, but on historical financial performance. Knowing how self-employed income is calculated for home loans can help you prepare your figures properly, avoid surprises, and position your application for the best possible outcome.
Why Lenders Use Historical Income
Lenders rely on historical income to assess how sustainable your earnings are over time. This approach helps them determine whether your business can continue to support loan repayments in the future.
Projected income or future contracts are generally not accepted unless supported by strong evidence.
Two-Year Income Averaging Explained
Most lenders calculate self-employed income by averaging the last two financial years. This applies to sole traders, partnerships, companies, and trusts.
If income is increasing, lenders may still use a two-year average. If income is declining, they often assess using the lower year.
What Income Add-Backs Are Allowed
Certain non-cash or one-off expenses may be added back to your income to improve borrowing capacity.
Common add-backs include:
- Depreciation
- One-off or abnormal expenses
- Interest on business loans
Each lender has different rules around what add-backs they accept.
How Business Structure Affects Assessment
Your business structure impacts how income is assessed. Sole traders are assessed differently to company directors or trust beneficiaries.
Lenders may look at salary, dividends, and retained profits depending on how income is distributed.
Why This Matters for Australian Self-Employed Borrowers
Australian lenders vary widely in how they assess self-employed income. Choosing the wrong lender can significantly reduce borrowing power or result in unnecessary decline.
How The Finance Brokers Can Help
The Finance Brokers understand lender-specific income assessment rules and structure applications to maximise accepted income. They help identify the right lender based on your business structure and financials.
Want to Know How Much You Can Borrow?
If you’re self-employed and want clarity around your borrowing power, speaking with a broker can help you plan with confidence.
Book a free consultation with The Finance Brokers
Final Thoughts
Understanding how self-employed income is calculated is critical to a successful home loan application. With the right preparation and lender selection, self-employed borrowers can significantly improve their approval chances.
