How Much Can a Self-Employed Person Borrow?

When a salaried employee applies for a mortgage, the lender mostly looks at one document — the payslip — and a few supporting pieces. When a self-employed applicant applies, the lender looks at a stack of documents that interact with each other: personal tax returns, business tax returns (where applicable), financial statements, BAS, bank statements, business debt statements, and the ATO Notices of Assessment that confirm the lodgements were accepted.

From the lender’s perspective, the questions are: Is the income real? Is it sustainable? How much of it is genuinely available to service a new home loan after the business itself is funded and the tax has been paid? Lenders answer those questions by walking the documents — not by reading a single headline figure.

Different lenders walk the documents differently. Two lenders looking at the same applicant can come to materially different borrowing-capacity numbers because they apply different add-backs, different income-averaging rules, different buffer rates, and different treatments of business debts. This is the single most important thing self-employed borrowers need to understand: borrowing capacity is not a number that exists in the abstract. It is the output of a specific lender’s policy applied to your specific documents.

The starting point for full-doc self-employed assessment is two years of personal tax returns, with the matching ATO Notice of Assessment for each year. The Notice of Assessment confirms that the return was lodged and processed by the ATO — without it, most full-doc lenders will not commence the assessment.

Where the applicant operates through a Pty Ltd company or trust, two years of business tax returns and the matching financial statements are typically required as well. The lender uses the financial statements to identify add-backs.

Common add-backs include: depreciation (non-cash), company tax that has already been paid (so it is not deducted twice), one-off expenses that are genuinely non-recurring (legal fees on a one-off matter, a specific asset write-down), interest on debts that are being refinanced or paid out as part of the proposed transaction, and — at some lenders — the employer super contributions of a director-owner above the SG minimum.

The add-backs allowed and the way they are documented are lender-specific. A Credit Representative who knows the policies can identify, from your tax return and financial statements, which add-backs each shortlisted lender will accept, and what evidence each one needs to substantiate the add-back. That work materially affects the borrowing capacity number a lender will calculate.

With two years of returns in front of them, lenders apply one of three broad approaches: use the average of the two years; use the lower of the two years; or use the most recent year (where it is the higher and the trend is up).

The averaging approach is the most common for full-doc self-employed assessments. It smooths normal variation between years and produces a reasonable middle figure. The lower-of approach is conservative — it is sometimes applied where there is reason to be cautious about the higher year (one-off contracts, unusual one-time income). The most-recent-year approach is favourable but typically requires the trend to be clearly upward, with current management accounts and YTD BAS supporting the continued trajectory.

For applicants whose income legitimately rose materially in the most recent year (a business that scaled), choosing a lender with a most-recent-year policy can make the difference between qualifying for the loan they actually need and falling short. For applicants whose income fell in the most recent year, expect lender-of-lower or lender-of-average treatment — and prepare a written explanation of the dip with current management accounts and BAS.

Tax returns answer: what did this business earn last year? BAS and bank statements answer: is the business still earning that this year? A typical full-doc application requires the most recent four quarterly BAS and 3-6 months of business and personal bank statements. The BAS gross income and net GST position should reconcile broadly to what the lender expects from the prior-year tax return; large discrepancies prompt questions.

Business debts are where lender policy differences become most visible. A $200,000 business equipment loan in the name of a Pty Ltd company can be treated by one lender as a personal liability (counted against personal income at the actual repayment), by another lender as a notional liability (counted at a higher notional rate), and by another lender as excluded entirely (where the business clearly services the debt and the applicant is not personally guaranteeing it).

The same logic applies to business overdrafts, trade facilities, ATO instalment arrangements and director loans. The right lender for a self-employed borrower with multiple business facilities is often the one whose policy excludes or notionally services facilities that the business genuinely services from cash flow.

Three remaining factors round out the borrowing-capacity calculation: living expenses, deposit (including savings history) and credit conduct.

Lenders are required under the Responsible Lending obligations to verify living expenses — they use a combination of declared expenses, HEM benchmark estimates and bank-statement review. Self-employed applicants whose business and personal expenses run through the same accounts should be prepared to walk the lender through which transactions are personal living and which are business.

Deposit matters in two ways. Size of deposit affects LVR, which affects rate, lenders mortgage insurance and which lenders will look at the application. Savings history affects whether the deposit qualifies as genuine savings — generally meaning 5% of the purchase price held in savings or shares for at least three months. Gifts, equity from existing property and inheritance can substitute for genuine savings under specific lender policies, but the documentation requirements differ.

Credit conduct — the conduct of existing loans, credit cards and ATO accounts — is reviewed across the assessment. Late payments, defaults, current arrears, ATO debt and unusual transaction patterns are all questions a lender will ask. Cleaning up credit conduct in the months before applying typically has more impact on borrowing capacity than chasing the absolute lowest rate.

For most self-employed applicants, the practical sequence to maximise the chance of a sensible borrowing-capacity outcome is:

1. Get the most recent year of tax return and BAS lodged and current.
2. Tidy credit conduct — particularly any small unpaid items, ATO instalments and credit-card limits not being used.
3. Identify deposit source clearly — genuine savings, equity, gift — and document the trail.
4. Work with a Credit Representative who can identify the lenders whose policies fit your income shape (averaging vs lower-of vs most-recent-year, treatment of business debts, add-back appetite).
5. Run a written pre-assessment with the most-likely lender before any formal application. Pre-assessment is not approval, but it surfaces the issues early.

The Eternity Group practice runs the accounting side and the lending side under one roof. For self-employed clients that combination matters: the same practitioner who prepares your year-end return understands which add-backs will be available, which lenders fit your income shape, and what documentation will be needed before a formal application is submitted.

Information on this guide is general in nature and does not take into account your objectives, financial situation or needs. Credit eligibility, lender criteria, fees and charges apply. Nothing here is a credit approval or final borrowing-capacity assessment. Personal credit advice based on your circumstances is available through a scoping engagement with Eternity Mortgage Solutions — Credit Representative 565110 under Australian Credit Licence 561324 held by Loans Only Pty Ltd.