Self-employed and searching for the right home loan?
With an abundance of information out there, it can be confusing. At Mortgage Providers, we have tried to simplify this for you with the following helpful fact sheet.
If you would like to know more, enquire online and one of our consultants will contact you. Alternatively, give us a call on 1300 656 600.
How many years do I need to have been self-employed?
Usually you need to have been self-employed for at least 2 years in order for lenders to consider your self-employed income.
However, if you’ve been self-employed for less than two years, you can still get a home loan; the lenders that offer loans to people with less than two years’ of self-employment history usually require that you have worked in your industry for longer than two years.
If you have been self-employed for less than a year, it is difficult to get a loan from most lenders as you will not be able to provide them with the required income documents that they need to prove your income.
However, there may be some specialty lenders that may consider income from your previous employment (as a safety net, because if the business fails you can return o that role)
These Low doc loans could be an option if you are self employed:
What documents do I need to prove my income?
- Some lenders require only 1 Year tax returns.
- Some Lenders will need to see your last 2 years tax return.
- Some lenders require Notice of Assessment; ensuring that all the details and certifications are what are disclosed to the Australian Taxation Office (ATO).
- Be aware that depending on the structure of your income (sole trader, company, trust etc), lenders may require further documents.
- Possibly interim financials.
- BAS (Business Activity Statements).
- Integrated Client Account (ICA) Tax portals.
How is my income calculated?
- Lenders ask for your old tax returns because they offer a guideline for how much you earn. They try to figure out how much the business may grow and how stable the income from your business is; how they do this differs between lender to lender. They may do this by using your lowest earned income or take an average using your historically earned self- employed income.
- Some lenders look at your most recent financial year tax return ONLY and use this to do your servicing.
- Lenders will also look at your tax return in detail in order to determine whether there are other forms of income available to them; a common form of this is add-backs.
- Addbacks are expenses that are viewed as not been a regular part of operating your business; some lenders may allow this to be ‘added back’ to your income and therefore increasing your servicing, however this is not done by all lenders.
Examples of addbacks may be:
- Depreciation on taxable assets
- One-off expenses
- Additional contributions to superfunds
- Net profits retained in a company
- Rent for non-continuing rent
- Bad debt write off
- Non recurring expenses
What if I don’t have the right documents?
Some lenders allow you to submit a signed income declaration in place of your tax returns. They’ll then use this declaration as the basis for deciding whether they’ll lend to you; this is known as a low doc loan.
Low doc loans, although useful as a last resort can have a number of restrictions:
- Low doc 60% LVR
- Low doc 70% LVR
- Low doc with MYOB & BAS
- Low doc 80% LVR
- Low doc 85% LVR
- Low doc Accountants letter
- Low doc with BAS
Mortgage Providers are experts in this field and can help you with achieving your dreams of purchasing or just saving you money on your home loan. Enquire online or contact one of our experts today to see how we can help you.