Construction loans for self-employed borrowers

The loan balance and repayments rise through the build, and the borrower is often paying rent at the same time. Lenders assess the full end loan at the buffered rate, and add rent as an expense for the construction period. For a self-employed borrower whose income is lumpy, the lender wants to see that the business cash flow can carry the worst month of the build, not just the average. Bank statements for the business are often requested even on full doc for that reason.

Twelve months of ABN and GST, six to twelve months of BAS or business bank statements, a fixed price contract with a licensed builder, and LVR capped at 70 to 80 per cent of the lower of cost and on-completion value. Rates are above full doc construction rates. Lenders are more likely to insist on a volume builder and standard contract, and less likely to accept cost plus, owner builder or unusual designs on a low doc file.

A licensed builder or tradesperson who is self-employed and wants to build their own home sits between construction lending and owner builder lending. If they engage their own company as the builder under a fixed price contract, some lenders treat it as a licensed build; others treat it as an owner build because the borrower controls the builder. The lender choice decides the LVR and the paperwork, and a specialist will pick the lender whose policy suits the arrangement.

Lodge the latest return before applying if at all possible. Have the business bank statements ready. Choose a builder and contract the lender will accept without questions. Build a rent budget into the application. And plan the refinance at completion: a low doc construction loan can be refinanced to a full doc standard loan once the home is finished and the next return is lodged.