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A google search for self-employed home loans will send you in the direction of lo-doc loans leading you to believe that this is the only option for you. Whilst in some cases a lo doc loan may be the right choice for you, it is important to consider all options to create a mortgage that most benefits you.
The reasons why lo doc loans are promoted so heavily by banks and mortgage brokers are:
As a small business owner you have already demonstrated a sense of entrepreneurship and you understand that success in business comes down to getting the details right – so it should be no different when it comes to choosing the right home loan.
The only real difference for a self-employed borrower to that of a PAYE borrower is that it’s more difficult for a bank to work out whether you can afford to meet your mortgage repayments into the future. A PAYE borrower provides one payslip to show their income while a self- employed person has a more complicated financial situation – there is no certain income and a bank will need to look at profit and loss statements, understand these and they are often up to 2 years old at the time of the application and may not even reflect what is happening now let alone into the future.
What may people don’t know that it is a legal responsibility of a lender to make sure that a borrower can afford the repayments a bank can’t just rely on the security of the house, so that’s why looking at your financial position is still important.
Don’t just go to the same bank where you have your savings or business account. Banks rely on this convenience factor and because they don’t have to try to win your business – you won’t get the best loan on offer.
Have your last 2 years financial statements, income tax returns and notice of assessments up to date and ready. Banks rarely will accept financial statements that have not been lodged with the Australian Taxation Office.
Understand that banks use different methods of assessment for self- employed people, some use the average of your last two years income, others the lower of the last 2 years while others use a variance method
Check to confirm that you are considered to be really self-employed, if you are a contractor or sub-contractor you may get away with being seen as an employee with some lenders
What are your business add backs? These will help increase the income a bank will use to determine if you can afford a loan and include:
– Car Allowance
– Depreciation
– Interest Expense that is being refinanced or no longer exists
– Excess superannuation contributions
– Non-Recurring Expenses
– Non-Cash Expenses
Quarantine your loan purpose, as a self-employed person you are far more likely to be able to claim some of your interest as a tax deduction, so it’s important to make sure you set up the correct loan structure from the beginning. Getting this wrong at the start often means it’s too late and can cost you in the long run
Make your cash flow work for you to save interest – consider a facility where you can “park” your GST payments before you need to remit them the tax office
Understand that the tax office may use your lo-doc declaration as evidence of your income if they undertake a tax audit, so don’t just make a figure up as not only might it cause you a tax headache it could cause you financial hardship too
If you have a business loan, the bank is probably going to charge you a higher rate interest rate and require annual reviews – which will cost you time and extra fees. Know that some lenders will lend for business purposes at home loan rates if you use residential property as security
Think about the future, assessing how your financial needs are likely to change might save you from having to re-work or re-structure your home loan regularly. We recommend you look forward 3 – 5 years
Credit History, it has always been important for small business owners to protect their credit rating but with the implementing of positive credit reporting we believe this will become even more apparent and transparent in the future.
Monitor cash flow and make sure your home loan is structured the right way for you to provide maximum flexibility.
Find out in one phone call!
We are confident that we know more about self-employed home loans than just about anyone else. For the past 17 years, our team has specialised in this area working alongside accountants who refer their clients to Mortgageport for our advice.
In one no obligation phone call, we’ll point you in the right direction.
Mortgageport has operated as a mortgage manager for the past 17 years and works closely with more than 100 independent accounting firms to help their clients get the right type of mortgage to suit their needs. We have access to a range of different credit policies, product features through our wholesale funders, which means that we can structure a self-employed loan that’s just right for you and there is no need to pay any more for the privilege.
Our mortgage consultants are experienced, work closely together and really understand small businesses. Many of our consultants are not only qualified in mortgages but are also trained in accounting, so understand financial statements and business
