Self Employed Home Loans
What do lenders require?
The majority of lenders will require you to be at least self employed for 2 to 3 years. You will need to provide 2 years tax returns for both yourself and your business with your notice of assessment. If you have a company, trust or partnership they will require the last 2 years financial statements and in some cases interim financials, recent BAS statements and 3 to 6 months bank statements to confirm business revenue.How do they calculate my income?
Lenders will look at your past tax returns to calculate your income because they believe this can predict how stable your business will be in the future.The following are some of the ways lenders will calculate your income:
- The lowest of the income figures for the last two years.
- Most recent year’s income as shown on your tax return.
- Average the two years income or take 120% of the lowest year’s income.
- They may or may not then add back expenses shown on your returns.
These different ways can make a big difference to what you can borrow. Every lender will interpret your tax returns differently and will consider your skills and industry experience to determine how to assess your income.
What are "add backs"?
There is a difference between what is your taxable income and your actual income. Lenders may add back expenses that reduced your taxable income but they are not a real expenses or an ongoing commitment.
Adding back expenses can have a positive effect on your income which will increase how much you can borrow!
The following are some of the examples of add backs:
- Depreciation
- Asset write-offs
- Additional superannuation
- Net Profit Before Tax (NPBT)
- One off expenses
- Interest expenses
- Rental property expenses
- Company car.
- Trust distributions
What if I don't meet the requirements?
There are other options available if you don't meet the standard requirements and in recent times these options have become very competitive. One example is a Low doc home loan.A Low doc home loan has less documentation requirements than a standard (Full Doc) home loan. Also referred to as alt doc home loans by a few lenders, it is a great way to borrow with less or alternative paperwork and financial documentation. The process is also much faster, simplified and easy to work with.
How should apply for a self employed home loan?
As you can see self employed home loans are complex and each lender is different to how they assess your income and what their minimum requirements are. Unfortunately we see many self employed borrowers deal directly with their bank which leads to long wait times and ultimately a NO!
To ensure you have the best chance of gaining home loan approval let BestLend work for you. We will assess your financial position and documentation to determine the best path for a fast and easy home loan approval. Fill in your details below and one of our team will contact you.