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Sole traders often face unique challenges when it comes to securing a home loan. Without the safety net of traditional employment and a regular payslip, proving financial stability can be complex. The fluctuating income and variable cash flow associated with running your own business can also make lenders more cautious.
That’s why understanding the specific requirements and preparing the right documentation is crucial. This guide provides practical steps and insights to help sole traders like you navigate the home loan process with confidence and clarity.
Unlike salaried employees, sole traders typically don’t have consistent income. Lenders will want to see your ability to maintain regular mortgage repayments. This often involves a deeper dive into your business records, tax returns, and financial statements.
Because income can vary month-to-month or year-to-year, lenders may average your income over the past two financial years. If one year was significantly lower than the other, this could negatively impact your borrowing capacity.
However, specialised non-bank lenders like Yard can offer more flexibility by assessing your income based on a single year's tax return or even draft financials. This can be especially helpful if your income has significantly increased in the past 12 months or if the previous year was unusually low.
New sole traders may have limited trading history, which can be a red flag for lenders. Most lenders prefer at least two years of continuous self-employment to consider your application favourably.
Each lender sets their own minimum income thresholds. Generally, you’ll need to show that your income is sufficient to service the loan and cover living expenses. Having other sources of income may also strengthen your application.
When applying for a sole trader home loan, lenders will assess your financial documentation based on the type of loan you're applying for: full documentation (full doc) or low documentation (low doc).
Full doc loans require you to have two years of lodged tax returns and business financials, including a profit and loss statement and balance sheet, that demonstrate consistent income.
Low doc loans cater to borrowers who may not have all the standard documentation, such as newly self-employed individuals or those with irregular income. These loans require fewer documents but may come with slightly higher interest rates or stricter lending conditions.
To qualify for a full doc loan, you'll typically need to provide:
If you're applying for a low doc loan, you'll typically need to provide one of the following options:
These options provide flexibility for borrowers whose financial documentation may not fit the standard mould.
Your credit history remains an important factor. Lenders will assess how reliably you’ve handled debt in the past. Staying on top of loan repayments for both personal and business finances can help you maintain a good credit history.
Start by gathering all your financial documents. Ensure your tax returns are up to date, and consider working with an accountant to prepare accurate income statements. Organisation is key.
Not all lenders assess sole trader income the same way. It's important to choose a specialist lender that focuses on self-employed lending. Non-bank lenders like Yard offer flexible assessment criteria and tailored solutions to suit the needs of sole traders.
Tips for improving chances of approval
Submitting incorrect or incomplete paperwork is a major cause of loan approval delays. Double-check that all financial records are accurate and up to date.
While Yard does not use automated credit scoring, maintaining a healthy credit history is still important. We assess each application individually on its own merits. To put your best foot forward, ensure there are no late repayments or payment defaults across your personal and business finances, as these can impact your overall creditworthiness.
Yes, as a sole trader operating under an ABN, you can apply for a home loan. You’ll need to provide proof of income and business activity, just like any other borrower.
Applying for a home loan as a sole trader can involve more complexity than for PAYG employees, largely due to the nature of self-employment income and the documentation required. However, at Yard, we offer a range of loan products specifically designed to support self-employed applicants.
If you have two years of lodged tax returns showing consistent income, you may qualify for a full doc home loan. For those with only one year of tax returns—or who lack traditional documentation altogether—we offer low doc home loans, which use alternative forms of income verification such as BAS, business bank statements, or an accountant's declaration.
Approval depends on your individual circumstances, including your credit history, income stability, and the supporting documents you provide. Our team is here to review your situation and help guide you toward the best solution for your needs.
At Yard, we understand that every business journey is unique. While many lenders prefer at least two years of self-employment history, we offer solutions for borrowers with just one year of tax returns or draft financials. If tax returns aren't available, we also have low doc loan options designed specifically for sole traders using alternative documentation.
Yes, having an ABN is a standard requirement for sole traders applying for a home loan. An ABN helps demonstrate that you are actively running a business and enables lenders to assess your income and financial standing.
It's important to understand that applying for a home loan as a sole trader is different from applying as a PAYG employee. PAYG applicants typically provide payslips and employment letters as proof of income, while sole traders are assessed based on business financials, tax returns, or alternative documentation.
At Yard, we offer solutions that accommodate these differences, including full doc home loans for those with two years of tax returns and low doc options for borrowers who may not have traditional financial documents. Our loan consultants are available to help review your situation and find the most appropriate option for your circumstances.
This depends on a range of factors, including your income, expenses, credit history, deposit size, and the type of documentation you can provide. To understand your borrowing capacity, get in touch with Yard to arrange a conversation with one of our loan consultants. They can assess your individual situation and help you find the right solution for your needs.
New loan inquiries: hello@yard.com.au
Service requests: help@yard.com.au
We consider your time, your circumstances and your wallet
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