I'm Jason Birks, a Brisbane mortgage broker, and self-employed borrowers are some of the clients I help most. Here's what lenders look at, and what you can do to get a better result.
How lenders look at your income
Most lenders want your last two years of personal and business tax returns, plus financial statements if you trade through a company or trust. They then use either the latest year, the average of the two or the lower of the two. If your income is growing, that choice alone can change your borrowing power a lot.
Some lenders will work from one year of tax returns if your ABN has been registered for long enough. Others want two full years of trading before they'll look at you.
Add-backs: income that counts even though you spent it
Your taxable income isn't the whole picture. Many lenders add back certain expenses to work out what the business can really afford:
- Depreciation. A cost on paper that doesn't leave your bank account.
- Interest on debts being refinanced. If the loan is being paid out, its interest shouldn't count against you.
- One-off expenses. A genuine one-off cost, explained by your accountant, is often accepted.
- Extra super contributions. Contributions above the compulsory amount are accepted by some lenders.
Lenders disagree on which add-backs they accept. That gap is often where the extra borrowing power comes from.
Low doc and alt doc loans
If your tax returns aren't lodged yet, or they don't show recent growth, a low doc (or alt doc) loan uses other evidence instead: BAS statements, business bank statements or an accountant's letter. These loans are mostly offered by non-bank lenders. They usually need a bigger deposit and come with a higher rate, so I treat them as a step for when a full doc loan won't work, and plan to refinance once your returns catch up.
What helps your application
- Lodge your tax returns on time, so lenders can use your most recent year
- Keep business and personal accounts separate
- Talk to me before your accountant finalises a year in which you plan to buy
- Deal with any ATO debt early. Some lenders accept a payment plan, others won't
- Keep your ABN and GST registration current
Who I help
Sole traders, contractors, company directors, trust structures and partnerships, as well as employees whose pay includes bonuses, commission or income earned overseas. If your income takes some explaining, that's the part I do.
Questions people ask
Can I get a home loan with one year of tax returns?
Some lenders will lend on one year of returns if your business has been registered for long enough. Others need two. It's worth checking before you wait another year.
Do I need a 20% deposit if I'm self-employed?
Not for a full doc loan. Self-employed borrowers can borrow above 80% with LMI, the same as employees. Low doc loans usually need a bigger deposit.
Can I get a loan with an ATO debt?
Sometimes. Lenders look at the size of the debt and whether it's on a payment plan. Policies vary a lot, so tell me about it up front.
Will I pay a higher rate because I'm self-employed?
Not on a full doc loan. Low doc loans usually cost more, which is why I plan the move back to a standard loan from the start.
