Home Loans for the Self-Employed
Now more than ever it is important for the self-employed to plan ahead to ensure you qualify for your home loan when you are considering buying a new property or refinancing an existing facility.
The Limitations below are examples of policies that banks have in place to validate the current and future earnings of self-employed applications. It can be a real minefield navigating this policy and lenders don’t make policy easy to uncover.
2 Years ABN
That’s right. If your ABN has not been established for 2 years, most lenders will not consider the income generated under the ABN. There are exceptions to the rule but this applies to almost every lender. If you are a property owner that has moved from PAYG to Self-Employed.
Every lender has slight variations around how they calculate your income for loan servicing. Depending on how your business has performed, different lenders can have vastly different borrowing power calculations due to policy variations. Some lenders may only require your most recent set of financial statements and tax return. This would work well if the previous financial year was not as profitable. Another method that lenders use is to average your most recent 2 years, whereas some lenders will simply take the worst year and use this. By understanding your business, we can suggest lenders which will provide you with the outcome you are seeking.
Requirement for Current Year Financials & Tax Return
Each lender will have a policy around when the most recent set of financials are required. Even though the tax office may not require the financials and tax return to be lodged by May of the following year, and lender may require them much soon if you are seeking finance. Check your lenders policy prior to purchasing to ensure you are ready.
Additional Super Contributions
If you have made additional voluntary super contributions in many cases, this can be added back in for income servicing.
Depreciation is a non-cash entry that recognises the reduction in the value of assets that your business owns. As these are non-cash transactions, these are added back in for income servicing.
When making declarations of existing finance that you have in place, you will be required to declare the debt level and the monthly repayment. The banks will use the monthly repayment to reduce your borrowing power, but they will allow you to add-back the interest expense on that debt to prevent double dipping on the declaration of outgoings.
Every lender is different as is every person or business that is seeking finance. Banking policy changes daily it seems so it is important to get a pre-approval in place with a lender that you know will be supportive of your business and the income it generates for servicing your home loan. We can work with you to uncover the most suitable lender for your situation. It can take up to 3weeks for a lender to assess a complex self-employed application assessment so be ready to ensure you can take advantage of opportunities when they present themselves.
Talk to one of our specialists if you would like to learn more.