This case study is based on real clients who had issues getting their loan approved due to experiencing a significant earnings increase. For the purposes of this article we’ll call them Ross & Rachel.
The names & certain details have been changed in the interest of privacy for the borrowers. The key facts and how we were able to solve their problem remain the same.
Ross & Rachel had been operating their small business for over 4 Years. After consistent sales for 3 years, their latest years revenue doubled.
When lending to self employed borrowers banks like to see sales grow slowly. As a general rule, they start asking questions when sales grow by more than 20% year-to-year.
If you were working as an employee and had your salary double, the banks would not be concerned. It’s a different story when you’re self employed. Lenders worry if the large increase is sustaninable long term.
In this case Ross & Rachel had a good explanation as to why their sales had increased. Their main competitor had decided to shut down the business that they had been competing with. Instead of competing with them, this business started referring work to them!
Lenders generally like to see self employed borrowers evidencing their sales over a 2 year period. This is generally done by supplying Tax Returns with accompanying Notice of Assessments. Ross & Rachel were confident the income was sustainable and didn’t want to buy their new home.
Initially we discussed Ross & Rachel’s situation with their current lender. They had excellent conduct on their current loans however the lender was not able to assist.
We then approached a different lender who was able to lend based on their most recent years tax returns. To assist in proving that the income was sustainable we also supplied Business Activity Statements (BAS).
By taking the time to find out about their business we were able to get their home loan approved. As an extra benefit the interest rate was even lower than what they were paying to their old lender!
If you are self employed and having problems with finance we can help. Please contact us about our obligation free mortgage broker service.