For self-employed borrowers it can be more difficult prove your income for a home loan. For employees showing payslips is easy, for the self employed this isn’t possible.
To prove your income banks will want to see proof of your last two years’ business income. This is generally done by providing your last 2 years Tax Returns and your Notice of Assessments.
Before the Global Financial Crisis, it was easier to qualify for a home loan. Many self-employed borrowers would qualify just by declaring their income without evidence. This is no longer the case and income needs to proven.
This does not always have to be your last two years Tax Returns. Many lenders offer alternative documentation, or low doc home loans.
Some examples of alternative forms of documentation include:
Business Activity Statements involve reporting the Australian Tax Office your recent sales. If you lodge your BAS quarterly some lenders will use this to verify your business income.
Business trading accounts can show what income & expenses a business has. Bank statements leave a clear trail of what your income is, as well as your business expenses are.
It helps if you operate your business out of one or two main trading accounts.
Depending on the nature of your business it is possible to qualify with as low as 3 months trading history.
If your accounts are accountant prepared, some lenders will use these to verify income.
This can be particularly useful if you have had a good start to the year and are expecting it to continue. If you had to wait to show this on a tax return you may have to wait 12 months to borrow. Accountant prepared interim financials can allow you to borrow to buy earlier.
If you use bookkeeping software such as MYOB or Xero, you will be able to print out internal Profit & Loss reports. This may be enough for certain lenders.
Finally, we have lenders available who will lend on providing only one years Tax Return.
This is helpful to those who have had a better year than previous and they expect this income to continue.
Start up businesses will often not show much income in their first year of trading. Yet, after a good second year, they are now showing consistent profits. A lender who requires two years tax returns will often average across income across two years. This can reduce your income, and in turn your borrowing capacity with that lender.
With over 30 lenders on our panel we can often find a solution where you bank can not. Please get in touch with us about our obligation free mortgage broker service.