Key Takeaways
- Self employed individuals, sole traders, and business owners can access construction loans, though the requirements are different from regular PAYG construction loans.
- In Australia, self employed construction loans require specific proof of income, and there are options for both full doc and low doc borrowers.
- Most lenders want two years of tax returns and financials for full doc loans, but some may allow one year’s financials.
- There are low doc construction loans. They usually have higher interest rates and require BAS statements or an accountant declaration to meet income verification requirements.
- To get approval, you need to know what documents and deposits are needed and what lenders look for.
- If you need a self employed construction loan, mortgage brokers who know what they're doing can help you find the right lenders and products.
Building a home requires a loan for almost all people and it can be hard for self employed people to get the money they need. Self employed borrowers have to manage with different rules for proving their income than salaried workers do. The good news is that in Australia, you can get a self employed construction loan.
This article talks about how self employed construction loans work, the difference between full doc and low doc options, what lenders look for, and how you can get the right kind of financing.
Can Self Employed Borrowers Get a Construction Loan in Australia?
Yes, self employed people in Australia can get a construction loan. Lenders look at these applications differently than those of salaried workers. Instead of payslips, they look at business income and financial records. There are two types of loan applications: full doc loans, which need two years of tax returns and financial statements, and low doc loans, which accept other forms of income verification, like BAS statements or an accountant’s declaration. There are different documents that need to be approved, but self employed people and businesses can still get construction loans.
What is a Self-Employed Construction Loan?
A self employed construction loan is a type of loan that lets self employed people build a home or investment property. Construction loans are different from regular home loans because they are drawn down in stages, depending on how far along the build is. The main difference for the self employed is how their income is looked at. Lenders don’t look at payslips; instead, they look at other financial documents like tax returns, business financials, BAS statements, and letters from accountants.
Staged Payments and Loan Structure
Construction loans differ from traditional home loans in their structure. Instead of receiving the loan amount upfront, funds are released in progress payments tied to stages such as:
- Land purchase
- Base stage (foundations)
- Frame stage
- Lock-up stage
- Final stage (completion)
This staged drawdown can be helpful for self employed borrowers because they only have to pay interest on the money they take out at each stage. But lenders usually want to see inspection reports or builder invoices before they release each payment.
Full Doc Construction Loans
A full doc construction loan is the standard pathway for self employed borrowers. The typical requirements include:
- The two most recent years of tax returns
- Two years of financials such as profit and loss and balance sheets
Some lenders will consider applications with only one year of financials, but providing two years of tax returns generally opens more lending options and improves approval chances.
Benefits of Full Doc Construction Loans
- Access to more lenders and products
- More competitive interest rates compared to low doc loans
- Higher borrowing capacity if income is consistent
Considerations
The main challenge for builders and contractors is the requirement to demonstrate consistent income over two years. This can be difficult for businesses that have recently expanded, restructured, or experienced irregular earnings.
Low Doc Construction Loans
Low doc construction loans are designed for self-employed borrowers who cannot provide full tax returns. Instead, alternative verification methods are used. While these loans are less competitive in terms of pricing, they remain an important option for those without up to date tax records.
What documents are needed for a low doc construction loan? Lenders may accept:
- Client’s declaration
- An accountant’s letter confirming income
- The latest two Business Activity Statements
Benefits of Low Doc Construction Loans
- Access to finance without full financial statements
- Flexibility for contractors with irregular income documentation
- Useful for recently self employed individuals with a valid ABN
Considerations
- Higher interest rates compared to full doc loans
- Fewer lender options
- Lower borrowing limits in some cases
Who Can Apply for Self-Employed Construction Loans?
Self employed construction loans are available to a wide range of business owners and contractors, including:
- Sole traders with ABNs
- Company directors and business partners
- Contractors and subcontractors in construction and trade industries
- Builders undertaking owner-builder projects
Lenders will want to see evidence of ongoing business activity and reliable income streams, even if seasonal fluctuations exist.
How Much Deposit do Self-Employed Need for Construction Loans?
A common question is how much deposit self employed borrowers need for a construction loan. The answer depends on the lender. Self employed construction loans are typically available up to 80% LVR. The higher your LVR, the more you pay in interest. An LVR of 65% and below usually offers the lowest rates since you pay more in deposit and offset the lender’s risk.
How Lenders Assess Applications
Lenders use a combination of financial documents and risk assessment criteria to evaluate applications. Key factors include:
- Evidence of ongoing contracts or work pipeline
- Profitability and cash flow stability
- Credit score and repayment behaviour
Applicants with a strong business record and clear financial documentation will generally have more options and access to competitive rates.
How to Find the Best Lenders for Self-Employed Construction Loans in Australia
The best lenders for self-employed construction loans in Australia are those that understand the unique financial circumstances of business owners, contractors, and tradies. Specialist and non bank lenders may have more flexible rules for people with an ABN or who haven’t filed two full years of tax returns. It’s important to compare lenders’ requirements, interest rates, and deposit conditions, but many self employed borrowers find it easier to work with a finance broker like Dark Horse Financial who can find lenders with policies that are good for self employed construction finance.
Commonly Asked Questions
Are construction loans available to ABN holders and contractors?
Yes, there are construction loans for sole traders and tradies with ABNs as long as they can demonstrate income stability and capacity to repay the loan.
What income proof do I need for a construction loan as a sole trader?
Sole traders usually need two years of tax returns and financial statements. For low doc loans, BAS statements or an accountant declaration may be accepted.
Who offers construction finance for business owners in Australia?
A range of non bank and specialist lenders provide self employed construction loans, though policies differ. Contact our team to find the best lender for your needs and situation.
Can I get a construction loan without full tax returns?
Yes, through a low doc construction loan. Lenders may accept BAS statements or an accountant declaration in place of complete tax returns.
In Summary
Self employed construction loans let business owners, sole traders, builders, contractors, and tradespeople pay for their projects even if their income is set up differently than that of salaried workers. Full doc options give the best results, but they need a lot of financial paperwork. Low doc loans are for people who don’t have all of their records.
Self employed borrowers can make stronger applications and have a better chance of getting approved if they know the documentary and deposit requirements. With the right strategy, construction financing can help individuals as well as companies build homes and investment properties.
Disclaimer: Loans and their accompanying benefits are available only to those who qualify for them and have been approved. Though we put a lot of care into writing this article, the information presented within is general and doesn’t consider your unique situation. It is not meant to serve as a substitute for professional advice, and you should not rely on it solely for any major financial decisions. You should always consult with a professional when you’re dealing with finance, tax, and accounting matters.
Find the Right Construction Loan
Dark Horse Financial can help you select the right loan products and connect you with the best lenders that can meet your needs. Send in an enquiry to get started.
