I just started a new business. Can I still apply for a loan?

• As a general rule, you must meet the following criteria:
  • Your business must be in the same line of work as your last job.
  • Your business must be less than 18 months old.
  • You must show that your business is currently trading.
  • Ideally, your business should be in the service industry with low expenses.
  • You must be borrowing less than 80% of the value of your property.

Types of self-employed borrowers

• Types of self-employed roles include, but are not limited to:
  • Business Owners: SME Owners, Founders, Franchise Owners, Sole Traders, Partnerships.
  • Freelancers, including Independent Contractors.
  • Tradespeople: Electricians, Plumbers, Builders.
  • Health and Wellness Professionals: Personal Trainers, Fitness Instructors.
  • Creative Professionals: Musicians, Actors, Filmmakers.
  • Professional Services: Accountants, Lawyers, Consultants.

Unusual employment

• If you’ve got a job and can afford a home loan, why won’t the banks help you?
  • With overtime, probation, contractors and agency workers with multiple part time jobs, it isn’t hard to see that most people don’t fit the banks normal rules. Luckily, modern home loan lenders are beginning to understand that these days not everyone has a 9-5 job and not everyone can prove their income as easily as they’d like to. You can still get a home loan! The secret to getting a lender to accept your income as true and correct is to apply with a lender that views your situation in a favourable light.
  • Providing the best possible combination of documents will also help to ensure that they assess you as earning a strong income. For example, if your payslips show a low income because you’ve done no overtime in the last few weeks, provide your group certificate and a letter from your employer instead!
  • On probation: Learn which lenders and loans are available to you when you have just started a new job.
  • Contract workers: Find out the reasons why lenders don’t like contract employees and how to find a lender that offer contractor mortgages.
  • Self employed: Not all lenders read tax returns in the same way. Did you know some can use BAS statements or even just let you tell them what your income is?
  • Casual employees: Just because you are technically casual it doesn’t mean that your income isn’t secure! You can get a home loan if your job is secure.
  • Overtime reliance: As much as a third or even half of the income of nurses, police officers and shift workers comes from overtime or other bonuses. Loans are available from lenders that will take your full income into consideration.
  • Temp / Agency workers: These days, agencies employ a significant part of the workforce. Most banks haven’t caught up with the times and still decline anyone employed through an agency. Of course not all lenders are the same!
  • Bonus income: We know which lenders will include your bonus income as part of your annual income.
  • Doctor home loans: If you’re in the medical industry, you may be eligible for great discounts and a waived Lenders Mortgage Insurance (LMI).
  • Discounts for professionals: Other professionals and high net worth individuals like dentists, vets, accountants, lawyers and mining engineers may also qualify for heavily reduced interest rates. You can save thousands with some lenders!
  • Rental income: Are you an investor who earns income through your rental property? Make it count towards a mortgage!
  • Commission income: Those working in sales roles may be paid on a commission basis. Find out which lenders will accept commission income.
  • Maternity Leave: Under a maternity leave home loan package, banks accept your return-to-work salary for assessing your income. Most banks allow up to 1 year of leave period but we also have a lender in our panel who accepts 2 years of leave period.

Unusual income

• Non-traditional or irregular income goes hand-in-hand with unusual employment depending on the industry that you work in.
  • This is particularly true of government jobs or sales professionals where you may receive bonus income or incentives. Some lenders will consider the following types of bonuses or incentives when assessing your income:
    • Annuity income
    • Bonus income
    • Commission income
    • Company car
    • Salary sacrifice or packaged salary
    • Stipend income

How can I improve my chances of getting approved for a home loan?

• Maintain organised and updated financial records, including invoices, activity statements, and bank statements, to demonstrate consistent income to lenders.
• Provide at least two years of business financials, tax returns, and profit and loss statements to prove your income claims.
• Pay credit card bills and loans on time to maintain a good credit score and lower existing debts to improve your debt to income (DTI) ratio.
• Track monthly cashflow to identify trends and save regularly for taxes and GST to show financial responsibility.
• Pay ATO debts on time.
• Carefully manage stock levels to avoid cashflow strain and review practices to order only what’s necessary.
• Discuss home purchase plans with your accountant to optimise finances and ensure records are mortgage-ready.
• Use separate bank accounts and financial records for personal and business transactions to simplify tracking and reporting.

Low Doc v. Full Doc for self-employed

• Who’s it for?
  • Low Doc: For self-employed borrowers who have the income to afford a house but not the standard self-employed documents to prove it.
  • Full Doc: For self-employed borrowers who have the income to afford a house and the standard self-employed documents to prove it.
• What documents are required?
  • Low Doc: Your ABN 12 months BAS 6 months’ bank statements for your main business account and personal cheque account. An accountant’s letter
  • Full Doc: 2 years of ABN registration 2 years of personal and business tax returns Recent business bank statements Recent two years of balance sheet and profit-and-loss statements
• The choice between low-doc and full-doc loans for self-employed individuals depends on your unique situation. Consider the following factors:
  • Income Stability: If you have a consistent income and can provide the necessary documentation, a full-doc loan may be the better choice, due to its lower interest rates and higher borrowing capacity.
  • Limited Documentation: If you lack the traditional documentation required for a full-doc loan, a low-doc loan can be a practical option to secure your home. It offers the flexibility needed to accommodate self-employed individuals with fluctuating incomes.
  • Interest Payments Tolerance: Consider how much you are willing to pay in interest over the life of the loan. If you are comfortable with a potentially higher interest rate in exchange for the convenience of less documentation, a low-doc loan may be the way to go.

Self-employed salary as income

• If you’re self-employed and you get a regular salary from your business, you can now use it as income to apply for a home loan. Before this change, most lenders required self-employed borrowers to provide at least 2 years’ worth of tax returns, financials and notices of assessment to calculate their borrowing power. This meant a lot of time spent wading through tax returns and financial statements to get an accurate estimate of your borrowing power. The process is simpler and faster now, as banks only require six months of payslips and an accountant’s letter stating that your business is more than able to cover its debts.
• A self-employed applicant can use ONE of these Proof Of Income:
  • Six months salary credited to an account
  • A payslip showing more than six months of Year-To-Date (YTD) income OR
  • A payslip with less than six months YTD income and a recent financial year PAYG Payment Summary or tax return
• Any of these methods will require an accountant’s letter on company letterhead with:
  • The date your business started trading
  • Evidence of sufficient profits to meet business commitments
  • A line saying your salary is regular and continuing
• An accountant’s letter is not required if you can provide profit-and-loss statements for the last two years showing you made a profit in each year.
• Self-employed borrowers who do not take a salary as income can use alternative proof.
• The bank will use only the income that you receive as a salary to assess your ability to repay the loan. So if your business is making a large profit, it will be ignored. That’s not a problem if you can easily afford the loan. If you are borrowing to your limit, however, it may be better to provide financial statements or apply for a low-doc loan so you can be assessed based on more of your income.

Can I refinance as a self-employed?

• Refinancing a home loan can provide benefits for self-employed individuals such as lower interest rates, improved loan terms, debt consolidation and access to home equity.
• Preparation includes:
  • detailed financial records, including at least two years of tax returns, business financial statements and BAS statements.
  • highlight business growth and recurring income contracts to determine stability.
  • build equity by making additional loan repayments or investing in home-improvement projects.

Required documents

• Home Loans For Those Self-Employed Under 2 Years
  • We have lenders on our panel that can approve loans for people who have been self-employed for between one and two years, as long as they have been in the same line of work for some time and have at least one year’s financials for the new business.
  • A good example of someone we can help is a plumber who has been operating his own business for one year and was previously employed as a plumber for five years.
• Home Loans For Self-Employed Under 1 Year
  • If you’ve been self-employed for less than one year, there aren’t many options. Most banks won’t lend to you because you don’t yet have tax returns to prove your income and because new businesses have more financial uncertainty. There is hope, though. One of our lenders can look at your income from your last job and take that as proof that you can afford the loan. The reasoning behind this is that if you decided to close your business you could always return to working for someone else on a similar salary. On that basis, we can help you borrow up to 80% of the property value.
• The documents required to get approved for a full-doc self-employed home loan are:
  • Personal tax returns from the two most recent financial years
  • Most recent ATO Notice of Assessment or an accountant’s letter that confirms tax returns are final and lodged with the ATO
  • Business tax return from the two most recent financial years
  • Business financial statements that an accountant prepares. These include the last two consecutive years of Profit and Loss statements, balance sheets and depreciation schedules from the most recent financial year.
  • Proof the business has traded profitably in the two most recent financial years
  • Active ABN for a minimum of 18 to 24 months.
  • Businesses that earn over $75,000 each year must register for GST. After registration, you must lodge a regular Business Activity Statement (BAS) to report how much GST your business has collected and is claiming.
  • If a full-doc application is not possible, low-doc options are available. Most lenders will accept a declaration confirming your income. The lender can then assess your loan using the declared income.
  • Lenders might charge a higher fee than the rate of a full-doc loan.
  • Even if Lenders Mortgage Insurance (LMI) is not applicable, you might be charged a risk fee for a low-doc application. This fee is usually charged for loans at over 60%-70% of the property value.

Standard verification

• Normal income verification
  • The normal way for a self employed person to verify their income to a bank for a full doc loan is to provide:
    • Last two years’ financial statements (Profit & loss and balance sheet).
    • Last two years’ business tax returns.
    • Last two years’ personal tax returns.
    • Last two years’ notices of assessment.
  • All lenders will accept the above information as full evidence of your income. However this doesn’t work for every self employed person.
  • What if your tax returns aren’t up to date? What if your income has changed since your last tax return was lodged?
  • The good news is there are other ways to prove your income.
• Low doc income verification
  • With a low doc loan, you still need to provide some evidence of your income due to the NCCP Act.
  • However, banks are much more lenient, and will use the income that you declare to them along with one of the below documents:
    • BAS statements
    • An accountant’s letter
    • Business bank statements
  • Can you verify your income using one of these methods?
• Adding back expenses
  • You provide your two years’ tax returns as you would for a normal loan; however, you provide evidence of expenses that the lender should add back to your taxable income.
  • This increases your taxable income, allowing you to qualify for a loan with full income evidence!
  • We can add back the following expenses:
    • Extra superannuation contributions.
    • Losses carried forward from prior years.
    • Negative gearing deductions from your investment properties.
    • One off expenses such as moving your business or a lawsuit.
    • Instant asset write-offs (e.g. the special $30,000 instant write-off in 2019).
    • Trust distributions to family members for tax purposes.
    • Depreciation.
• Not every lender can use these “add backs”. Who can use this method?
  • This is particularly useful for people who have a business that has significant depreciation. For example, a trucking company, video store or any business with many depreciable assets can use this method.
  • However, any business with a good income yet has had some major expenses in the previous year can consider this option.
• How much can I borrow?
  • This is a full doc loan, otherwise known as a normal loan. You can borrow up to 95% and you can obtain discounted interest rates.
• Trust income
  • Some people have a complex financial situation with many companies and trusts set up, yet have a taxable income that can easily prove affordability.
  • This is common with business owners who are trying to maximise asset protection.
  • Banks typically require that you provide financials for all of these entities which is often unnecessary.
  • Some of our lenders will allow you to provide two years Notices of Assessment (NoAs) without any tax returns.
  • To qualify, you must be self-employed and be borrowing no more than 80% of the property value.

Alternative verification

• One year’s tax returns
  • Some of our lenders do not need two years tax returns or financial statements. This is great news for people who have a new business with a low profit in the first year or for businesses that had a one-off bad year. You will need to provide:
    • Last years’ financial statements (Profit & loss and balance sheet).
    • Last years’ business tax returns.
    • Last years’ personal tax returns.
    • Last years’ notices of assessment.
• Old tax returns
  • Outdated tax return. Did you lodge the last tax return some time ago? Out of date tax returns can be accepted by some of our lenders. Lenders might request your Business Activity Statements (BAS) in case if the tax returns are not available. As a general rule, you must meet the following criteria:
    • Your old tax returns must show a high income.
    • You must show two years of tax returns & financial statements.
    • Your tax return must be no more than two years old (see below).
    • You can borrow up to 90% of the property value.
    • Your latest tax return must be from the financial year that ended no more than two years ago. For example, the 2019/2020 financial year ended on 30/6/2020. So we can accept your 2018/2019 and 2019/2020 tax returns as evidence of your income until 1/7/2021!
  • Recent tax returns can be beneficial for you, especially if you can’t provide BAS. We know lenders who don’t require BAS if you have recent tax returns.
  • If your old tax returns don’t show a good income, we can sometimes use an old tax return combined with 12 months BAS to prove your income. The lender will use your old tax return to work out the profit margin for your business. They then use the turnover from your BAS and apply this profit margin to work out your current profit. With this method, you can borrow up to 90% of the property value.
  • This is ideal for someone who has a good income, however, has not completed their most recent tax return. This is a full doc loan, otherwise known as a normal loan. You can borrow up to 90% of the property value and you can obtain discounted interest rates with one of our lenders.
  • If you provide BAS in case the tax return is not available, it will be a low doc loan. As a self-employed contractor, you:
    • do not provide materials, only your labour.
    • do not have employees. work for one main company only.
    • can provide invoices and bank statements to verify your income.
    • are borrowing no more than 90% of the property value.
  • In this case, lenders might be able to accept your income with just your invoices and bank statements as evidence of your income. While some lenders might ask for more documents to validate your income. In case you are also a PAYG employee, you might need to provide an accountant letter, BAS, or a tax return. Financials, without tax returns Some of our lenders will accept two years financial statements without tax returns for alt doc home loans. Of course, there are some conditions:
    • Two years financial statements are required.
    • Borrow up to 80% of the property value.
    • This is a full doc loan, not a low doc loan, so the rate is competitive.
    • The financial statements must be accountant prepared and not a draft.
    • You do not need to provide tax returns or a notice of assessment.

Property purchasing costs

• Minimum of 5% deposit
• Stamp duty
• Property title transfer fee
• Registration fees
• Conveyancing fees
• Inspections including building/strata and pest
• Home loan set up fees
• Lenders Mortgage Insurance (LMI)

Property selling costs

• Agent Fees
• Marketing Costs
• Conveyancing Fees
• Capital Gains Tax (CGT)
• Presale Repairs and Renovations
• Styling/ Home Staging
• Auctioneer’s Fees
• Lender Fees
• Moving Costs