to gauge whether you can meet repayments into the future. The Australian Securities and Investments Commission (ASIC) also requires lenders and mortgage brokers to ensure you are able to repay your loan without suffering financial hardship.
Lenders like to see consistency of income, and if your financial record-keeping is top-notch, it will be easier to illustrate your earnings and ultimately have your loan application approved. If you’re self-employed and thinking about buying a home, it’s a good idea to have your last two years’ financial statements, income tax returns and notices of assessment ready to go.
3) Get your accountant on the job
One challenge self-employed borrowers may face is not being able to prove they can service a loan because their
accountant has been clever about reducing their taxable income. While you may save money on your tax bill, reducing your taxable income can also affect your ability to apply for credit and invest in property. It’s important to talk to a qualified accountant about your home buying aspirations and the tax implications.
We have some great contacts, so let us know if you need a referral.
Often there are business expenses that can be added back to your taxable income to work out your borrowing capacity. These “add-backs” include larger stand-alone costs, non-cash expenses like depreciation, additional super contributions, and interest on loans being refinanced. Talk to us about whether “add-backs” could improve your chances of being approved.
4) Provide the necessary documentation
If you’ve been self-employed for more than two years, you can verify your income by providing two years of personal tax returns and the correlating ATO notices of assessment, two years of tax returns for all entities (company, trust, Self-Managed Super Fund), and two years of profit and loss statements (if applicable).
If you’ve been self-employed for less than two years, the income requirements on Alternative Documentation loans include: six months of Business Activity Statements, six months of business account statements, six months of personal bank account statements, confirmation of ABN and confirmation of GST registration. You will also need a letter from your accountant confirming your full legal name, trading name, how long the accountant has serviced you, gross taxable income for the past three years and any relevant deductions.