February 12, 2016
Even with an income that is regular and decent, if you are self employed, lenders expect you to jump through a few more hoops than a standard PAYG borrower to get a home loan.
But it’s not all doom and gloom just because you own your own business. You may just need to sit down with your mortgage Choice broker and get to know your numbers, and which lenders are most likely to lend to you.
Here is 6 tips on how to boost your chances of getting a home loan if you are self employed:
1: Establish your level of taxable income, and how much you can borrow.
If you are in a business that is making a great income, but you have sourced an accountant who is almost too good at reducing your taxable income, then this can affect your chances of getting a home loan for the amount you would like.
Sit down with your broker and work out exactly how much you can borrow, based on your last 2 years tax returns. Is your income enough to make the monthly repayments for a loan that enables you to buy the property you want?
Are you saving more by paying less tax, or losing more by not being able to get a home loan to invest in property?
If you believe your business income can actually cover it, but the paperwork does not reflect that, then you may need to speak with your accountant, and come back in the next financial year or two showing a higher income, in order to borrow more.
2: Tell your broker all about what’s going on in your business.
When it comes to the financial side of business, accountants and brokers are trained to work out solutions that may not be so obvious to the business owner. Full disclosure is therefore paramount. If you don’t disclose the full business story to your broker upfront, when your information is due to be verified by both the broker and lender, and things ‘pop up’ that the broker didn’t know about, road blocks and delays in getting your loan approved can occur. It may even effect your chances of obtaining a loan. It’s always best to be upfront from the get go.
3: Be income consistent.
Consistency in your business income is key.Lenders will ask for two years of personal tax returns to show that the business has been consistently making money, and can therefore service the loan. If one year’s income is much higher than the other, the lenders will generally take the lower of the two when determining how much they will lend you, regardless of which year made more money.
4: Prove it with paperwork.
Once you have met with your broker, looked at the numbers, and know how much your business is turning over, you will need to prove it. Lenders want evidence that your income is what you say it is from the business. Be ready to provide this paperwork to your broker, so your application doesn’t get stalled.
Be prepared to provide:
For a Sole Trader or Partnership: Most recent 2 years personal Tax Returns and Tax Assessment Notices,
For a Company / Trust: Most recent 2 years personal Tax Returns and Tax Assessment Notices, and company Financial Statements and Tax Returns.
PLUS: Be prepared to provide documentation and/or information on any Bank statements, BAS statements, Rental agreements, Credit facility statements, leases, hire purchases, overdrafts, company loans and/or guarantees, and any forms of other income such as Centrelink payments / maintenance payments.
Have your 100pts of ID ready: such as drivers licence, credit card, passport or Medicare card etc.
Assets and Liabilities: you will need to provide details of assets (such as investments, savings accounts, and other items) and liabilities (such as personal loans, credit cards, store cards, HECS dents or family repayments etc).
For a full list of documentation required, download the below PDF, collect the relevant items, and ensure you take it all along with you to your meeting with the broker.
5: Be in business for two years before you apply.
The majority of lenders will require an applicant to be self-employed for a minimum of 2 years before they will even look sideways at you. Again, because they want you to prove your income, via your 2 years of tax returns so they know you will be able to make your loan repayments easily.
If you need a little more information on how I can help you get a home loan if you are self employed, call me today, send me an email, or read my blogs on:
Are you ready to talk home loans?
Or, for further information on this or any other topic, please contact your Mortgage Choice broker,
Phone 07 3833 9666,
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Daniel is looking forward to helping you with your home loan options today. Thanks for reading our blog.
This article is for general information purposes only and does not constitute specialist advice. It should not be relied upon for the purposes of entering into any legal or financial commitments. It has been prepared without considering your objectives, financial situation or needs. You should, before acting on the advice, consider its appropriateness to your circumstances, and specific investment advice should be obtained from a suitably qualified professional before adopting any investment strategy.