Avoid these 3 mistakes with self-employed home loans

Self-employed income doesn't disqualify you, but incomplete documentation will

You can get approved with self-employed income. Lenders assess your capacity to service a home loan based on your income and expenses, not your employment structure. The difference is in how you prove that income. If you're a tutor working for yourself, running a tutoring business, or teaching casually across multiple schools while invoicing as a sole trader, you'll need to show financial records rather than a single payslip.

Consider a tutor in Melbourne who earned $92,000 across the previous financial year through a mix of private students and contract work with a tutoring centre. Her taxable income after legitimate deductions was $78,000. She had two years of tax returns, a current notice of assessment from the ATO, and year-to-date profit and loss statements prepared by her accountant. That was enough to proceed with a full assessment. Her application moved through in the same timeframe as a salaried applicant.

Most lenders want two years of financials. Some will work with 12 months if your income is stable and you meet other criteria. A mortgage broker for teachers can tell you which lenders will assess your situation before you spend time gathering documents that won't be used.

Claiming every deduction lowers your borrowing capacity, not just your tax

Your taxable income determines how much you can borrow. Lenders calculate serviceability using the income figure on your notice of assessment, not your gross revenue. If you earned $95,000 but claimed $30,000 in deductions, the lender sees $65,000. That reduces what you can borrow by tens of thousands of dollars, sometimes more.

In a scenario like this, a high school teacher running weekend tutoring sessions as a sole trader might gross $110,000 annually but reduce taxable income to $72,000 after claiming vehicle expenses, home office costs, and course materials. At current variable rates, that difference in declared income could reduce borrowing capacity by $80,000 to $100,000 depending on other debts and expenses. The teacher saved $6,000 in tax but gave up access to a property price range that might have suited their family better.

This doesn't mean you shouldn't claim deductions. It means you need to plan ahead. If you're applying for a home loan in the next 12 to 18 months, talk to your accountant about balancing tax minimisation with income verification. Some deductions are worth claiming. Others cost you more in lost borrowing capacity than they save in tax.

Not all lenders treat ABN income the same way, and the gap is significant

Some lenders will accept 12 months of financials for self-employed applicants. Others require 24 months with no exceptions. Some will assess your income using the most recent year if it's higher. Others average the last two years, which penalises anyone whose income has grown. A few lenders allow you to declare income before it appears on a lodged tax return, using business activity statements and profit and loss reports. Most won't.

If you lodge your tax return late, some lenders treat that as a risk factor and decline the application outright. Others don't care as long as the ATO has processed your return and issued a notice of assessment. The difference between a lender who averages two years of income at $68,000 and one who uses your current year at $81,000 can determine whether you're approved or declined for the same property.

Tutors and educators working under an ABN often have variable income depending on school terms, exam seasons, and student numbers. One lender might decline that variability. Another might accept it if you can show the income is seasonal but consistent year on year. Choosing the wrong lender means your application gets assessed under a policy that doesn't suit your circumstances, and you find out only after you've already spent weeks gathering documents.

You don't need to approach lenders yourself to find out their policies. A broker who works with teachers regularly already knows which lenders assess self-employed income fairly and which ones don't. That removes the guesswork and the risk of a decline that sits on your credit file.

The documents you'll actually need, and when to start gathering them

You'll need your two most recent notices of assessment from the ATO. You'll need the full tax returns that match those assessments, not just the summary pages. If you've lodged your most recent return but the ATO hasn't processed it yet, some lenders will wait. Others won't.

You'll need profit and loss statements for the current financial year, showing income and expenses from July through to the month you apply. If your accountant prepares these, they should be on letterhead and signed. Some lenders accept statements you've prepared yourself using accounting software like Xero or MYOB. Some don't.

If your business is registered for GST, you'll need business activity statements for the last 12 months. If you're a company or trust rather than a sole trader, you'll need company tax returns, trust distribution minutes, and sometimes a letter from your accountant confirming your entitlement to income.

If you've recently increased your rates, taken on more students, or expanded your services, a letter from your accountant explaining the change and projecting forward income can support your application. It won't replace tax returns, but it gives the lender context for income growth that hasn't yet appeared on an ATO notice.

Start gathering these documents three months before you plan to apply. That gives you time to follow up with the ATO if a notice of assessment is missing, chase your accountant if statements aren't current, or lodge an overdue return without rushing it. Waiting until you've found a property and then realising your 2024-25 return still isn't lodged will cost you the purchase.

LMI waivers apply to self-employed teachers, but only with specific lenders

Some lenders offer LMI waivers for teachers borrowing above 80 per cent, even when income is self-employed. The waiver isn't automatic. You'll need to meet the lender's definition of a teacher, which usually means current registration with the state or territory teaching authority. If you're tutoring full-time but no longer registered, some lenders won't extend the waiver. Others will, provided your qualifications and previous registration are documented.

The waiver can save $10,000 to $20,000 in upfront insurance costs on a loan between $400,000 and $600,000, depending on your deposit size. Not every lender offers it. Not every lender who offers it applies the same eligibility criteria. If your income is self-employed and you're borrowing with less than a 20 per cent deposit, confirm the waiver applies to your situation before you assume it does.

You'll still qualify for the same loan features as any other borrower

Offset accounts, redraw facilities, split loan structures, and the ability to make extra repayments without penalty are all available on mortgages for teachers with self-employed income. Your employment structure doesn't limit your access to loan features. It only changes how the lender assesses your income at application.

If you want to fix part of your loan and keep part variable, that's available. If you want an offset account linked to a variable portion so you can park your income and reduce interest without losing access to cash, that's standard. The loan you end up with should match your financial priorities, not be a compromise because your income comes from an ABN.

Call one of our team or book an appointment at a time that works for you. We'll walk through your financials, tell you what lenders will accept, and make sure your application goes to the right place the first time.

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