How much can I borrow when self-employed?

What decides how much a self-employed person can borrow?

Four things carry most of the weight: the income a lender will accept, what you owe and spend, how much deposit or equity you bring, and the lender’s policy. The last one is the wild card. Two lenders can look at the same business and arrive at quite different numbers.

For a salaried borrower, the income side is simple. For a self-employed borrower, it takes judgement. A lender must decide how much of your profit is genuine, repeatable and available to service a loan. That is why a business owner can feel they earn well yet find the borrowing amount disappointing.

This guide walks through how the calculation usually works, so you can see where your own numbers sit. Ownright Custom Finance arranges home loans for self-employed borrowers Australia-wide, and the questions below come up on almost every file.

How do lenders turn business income into assessable income?

Lenders start from your documents. Depending on the loan type, that can be personal tax returns, business financials, notices of assessment, BAS or bank statements.

Common approaches include:

• Latest year only. Some lenders use the most recent year if it is higher or stable.
• Average of two years. Others average two years to smooth out peaks and troughs. If income has dropped, the lower figure may pull the average down.
• Lower of the two. A more cautious approach for borrowers with falling income.
• Add-backs. Certain items, commonly depreciation or one-off costs, may be added back to profit before assessment, depending on lender policy.
• Salary and drawings. For company structures, lenders may look at wages and dividends actually drawn rather than company profit.

Turnover is almost never the measure. A business can turn over a large sum and leave modest profit after costs, and lenders care about what is left.

What is the serviceability buffer and why does it matter?

Lenders do not only test whether you can afford repayments at today’s rate. They add a safety margin. APRA, the prudential regulator for banks and similar institutions, raised the minimum interest rate serviceability buffer to at least 3 percentage points above the loan’s rate in October 2021, and in its November 2024 update stated that the buffer will remain at 3 percentage points.

In plain terms, a lender assessing your application checks that you could still afford the loan if rates were noticeably higher. That is a main reason the amount you can borrow is lower than the amount repayments feel comfortable at today.

The buffer applies to the institutions APRA regulates. Other lenders set their own assessment approaches, which is one reason people with unusual files sometimes see different outcomes outside the major banks. Our non-bank lenders explained guide covers that landscape.

What reduces borrowing power the most?

Many borrowers are surprised by how much the debts side matters. The biggest drags tend to be:

• Credit card limits. Lenders often assess the limit, not the balance, so an unused card still counts.
• Personal loans, car loans and hire purchase. Regular repayments reduce what is left for a mortgage.
• Buy-now-pay-later and other commitments. They can appear on assessments.
• Business debt personally guaranteed. Some lenders include it.
• ATO payment arrangements. They are an ongoing commitment.
• Dependants and living costs. More people in the household means a higher assumed expense floor.
• Other property loans. Investment debt is assessed as well.

Cancelling cards you do not use, or reducing limits, is a common way to lift borrowing power before applying. Think about doing it a little ahead of time, because the changes need to be reflected in your documents.

How do I estimate my own position?

A rough method that mirrors what lenders do:

1. Work out income a lender is likely to accept, based on your last two years of returns or alternative evidence.
2. List all debts and credit limits.
3. Estimate household living expenses honestly.
4. Allow for the serviceability buffer, which pushes the test repayment higher than your actual repayment.
5. Consider the deposit and what the property will be.

Online calculators can give a general sense, though they cannot capture lender-specific policy on self-employed income. That is where a broker’s knowledge is more useful than a generic tool. Our loan calculator can help you explore repayments, while a conversation with us shows how real lender policy might treat your income.

How do the loan type and structure change the answer?

Factor	Effect on borrowing power
Full doc with strong, rising income	Usually the broadest choice of lenders
Low doc or alternative doc	Different evidence, often different limits and terms (Moneysmart notes they usually cost more)
Falling income	May pull assessment down to the lower year
Trust or company structure	Depends on how profit and drawings are treated
Larger deposit or equity	Widens lender choice and can reduce insurance costs
Guarantor or co-borrower	Adds income or security to the assessment
Investment vs owner-occupied	Policies and assessment can differ

The structure of the loan also matters. Interest-only periods, loan terms and splits can change how repayments are calculated for assessment. A broker can test options before you commit to anything.

Who might want to look at this more closely?

This is worth paying attention to if you:

• Are planning to buy a first home or an investment property and run your own business.
• Have recently had a drop in profit and are worried about assessment.
• Are considering a big purchase and want to know what is realistic.
• Have been told your borrowing power is lower than expected.
• Run a trust or company and are not sure how income will be treated.

Our self-employed home loans page and property purchase loans page show how we arrange these loans, and if you are buying your first home with a complicated income, the first home buyer loans page is relevant.

What does a worked example look like?

This is an illustrative scenario only and does not describe a real client.

A director of a small company draws a modest salary and leaves profit in the business. Her accountant has structured things sensibly for tax. A first lender looked only at her salary and told her she could borrow far less than she hoped.

Her broker reviewed the company financials and identified lenders whose policies take retained profit into account where the director controls the company. After comparing a few, one lender assessed a materially higher income figure. The numbers on her side did not change. The policy fit did. Whether another borrower would see the same result depends on their file, but the example shows why policy matters as much as income.

How does Ownright approach borrowing power?

We begin with the real picture of your business rather than a quick estimate. Trevor Scott and the team ask how income is structured, what is going to change, which debts can be tidied up and what you want the property to do for you.

Then we look at lenders and structures that suit the file, including ones that sit outside the typical lists. We are straight about limits: we will not promise a figure before we have seen your documents, and we will tell you if a short delay to lodge a return or clear a card would improve the result. We work Australia-wide from our Knoxfield, Victoria head office.

If you would like us to look at your numbers, start on our apply page.

Does the type of property or purchase change the amount?

It can. Owner-occupied purchases, investment properties and refinances are assessed with different rules in many lenders’ policies. Investors may find rental income is counted at a discount and existing investment debts weigh heavily. First home buyers who run a business may find that a deposit history and a clean savings pattern help a lot, particularly if their income is lumpy.

The property itself matters too. Standard houses and units in well-supported areas are comfortable for most lenders. Rural, very small or unusual properties narrow the field and can affect the maximum loan-to-value ratio on offer. If you are looking at something out of the ordinary, mention it early so your broker can aim at lenders that welcome it. Our investment property loans page covers the investor side.

Is it better to borrow the maximum or something lower?

The maximum a lender will approve is not the same as the amount that suits your life. Self-employed income moves with seasons, clients and the economy. A repayment that feels fine in a strong year can pinch in a quiet one, and the buffer lenders use is a test, not a promise about future rates.

Many borrowers choose to stay below their ceiling, keep a cash reserve and build the loan around their worst plausible year, not their best. That is a personal decision, and we are happy to work through different scenarios with you so the number you choose is one you can live with comfortably.

How often should I re-check my borrowing power?

Whenever something material changes: a new tax return, a change in debts, a shift in your business or a decision about the property. Policies also evolve, so what a lender accepted last year may be treated differently now. Checking before you start house hunting, and again before you make an offer, avoids nasty surprises. A quick conversation with a broker costs nothing and keeps your expectations realistic, which is far better than finding out the number at the worst possible moment.

What mistakes reduce borrowing power unnecessarily?

• Applying before tidying debts. Unused card limits count.
• Lodging late. Outdated returns narrow the lender list.
• Moving income around just before applying. Sudden changes invite questions.
• Applying to multiple lenders. Each formal application adds an enquiry that the OAIC says stays on file for five years.
• Relying on one lender’s answer. One no is a policy outcome, not a universal verdict.
• Ignoring the buffer. The comfortable repayment is not the tested repayment.

What can I do to lift my borrowing power?

Some levers are quick, others take time:

• Reduce or close unused credit cards and clear small loans.
• Lodge outstanding returns and BAS.
• Build the deposit, or consider a guarantor if that suits your family.
• Review whether a different loan structure or term helps the test.
• Let a run of clean conduct build up on existing loans.
• Ask a broker to compare lender policies on add-backs and structure.

None of these are guaranteed to work for every file, and some involve trade-offs worth discussing. Ask about each one before acting.

What documents should I gather to get a proper answer?

• Two years of personal and business tax returns and notices of assessment, where available.
• Recent BAS and business bank statements.
• Company or trust financials, if applicable.
• A list of debts, credit cards and limits.
• Evidence of your deposit and savings.
• Details of the property or the amount you want to borrow.

ASIC says lenders and brokers must make reasonable inquiries and take reasonable steps to verify your situation. Bring accurate documents, and the answer you receive will be a real one. When you are ready, call Ownright Custom Finance on 03 7043 7233 or send us your details and we will show you where you stand.