If you are currently self-employed or have been in the past then you will be familiar with the challenges most self-employed people face when it comes time to get a Home loan. Let me take you through what some of these challenges are and my tips to help you get over them.
There is also the large list of things that need to be supplied to your Broker when you are looking to get a loan, unlike PAYG employees most lenders need you to supply at minimum your Two most recent Tax returns and Business Financials as well as your Individual Tax returns and notice of assessment to show your business income over the past 2 financial years.
What does your Broker do with this information?
They work through these figures to work out the average across both years however if for whatever reason there is a large variance between the two years (which happens more often than not when you’re self-employed) then the lower year financial details are used.
Another thing to consider when getting your Home loan is all business debits are accounted for on your Balance sheet as well as assets. This means although you may not have any loans at all, the business may have Hire Purchase or Car Leases which will be considered when looking at how much you can borrow.
In my experience, most accountants work with their clients to bring their income down as low as possible saving them money on Tax however when the income comes down too low it can mean your borrowing capacity is decreased. At times, I have even seen some clients on an income so low it doesn’t appear to service their current debits let alone a new one.
So, what can you do? Firstly, I encourage you to work with your broker, taking the time to discuss what has been happening in your business over the past few years, the reason for declines or inclines in profit, what the next few years will look like etc. Your Broker will then be able to access multiple lenders and banks to see which would be best suited to you, your long-term plans and your business.
The more information the better when it comes to getting your loan approved so make sure you tell your Broker everything. For example, your business may have just started two years ago, so a lot of the write-offs may be Start-up costs and not relevant to future years. You may have had to write-off a large account as a bad debit one year and that too won’t be carried across. All this information may assist your Broker to mitigate to the Lender on your behalf.
It’s also important to have this discussion and submit your pre-approval before you start your house hunting as self-employed loans tend to take a little bit longer. Having your pre-approval in place will mean you can start your house hunting with the knowledge of how much you can borrow as well as the comfort you are pre-approved on the servicing side.