The self-employed don’t always offer the financial stability a lender looks for in a borrower and as such, as a self-employed person applying for a home loan, you’ll need to provide the bank with 2 years trading history of your business in most cases. They will review your personal and business tax returns and have a look at whether your business is profitable year on year or your reducing in profit year on year. If you have one year or less unfortunately, this further limits your options. Major lenders and banks won’t offer any home loan products to you if you’ve worked for yourself for less than one year. They need to see proof of income from your tax returns and other documentation.
The lender can have questions around the operations of your business should you have a spike in profit to ensure it’s sustainable and vice versa if you have a decline in profit. 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 whether your income will be stable for a long period of time. The technique for this varies depending on the lender. Some will base their estimates on your lowest income figure, whereas others may use your most recent tax return. Others still may take your entire self-employment history into account and create an average income figure.
When it comes to reviewing your tax return you send to a lender must come with a notice of assessment. Your lender will check the signatures and certification to ensure everything matches up. Doing this ensures the tax returns you send to a lender match those you’ve submitted to the Australian Taxation Office (ATO).
PRO TIP: AVOID BUSINESS LOAN
This is especially the case if you try to borrow as part of a partnership, company, or trust. Getting a business loan does not benefit you if you use your residential property as the security on the home loan. You’ll have to pay more fees and a higher interest rate.
The number one tip to save time with all the necessary paperwork will be to get your broker/lender in direct contact with your accountant so anything outside policy that the bank requests can be provided without the application assessment dragging out or being delayed.
If you run your own business and are in the market to purchase a property the speak to our expert team at BlueCherry a call on (02) 9897 1039 to book an appointment.