by Dan Cuthbert

It doesn’t matter how much you earn or how regular your income is: if you’re self-employed, that’s one more hoop you will need to jump through when applying for a home loan. That’s not to say all self-employed borrowers will struggle getting finance, it just means you might need to work a little bit harder and pay close attention to the details.

To boost your chances of getting an approval come and sit down with us at Power Tynan Leasing & Finance so that we can establish what taxable income level you will need to apply for credit. Once we have established your buying power and determined your eligibility for finance you will need to prove that your income is what you say it is.

Lenders look for consistency of income, they want to see that business has been ticking along steadily and maintaining a level of income that is suitable to meet their minimum servicing requirements. To confirm this, the lender will request the most recent two years’ worth of personal tax returns, financial statements and ATO assessment notices for all legal entities you are involved with. If there is a large fluctuation between taxable income for the last two financial years, the lender may utilise the figures that relate to the lower of the two, even if that is an older statement. Some lenders only want one year or some will take an average of the two. By talking to us at Power Tynan Leasing and Finance we can work out which lender will be best to use based on the financial information you provide us with. Lenders will also want to see the tax returns for the current year once it gets to about the 31st of December each year e.g. if applying for finance after 31/12/2012 they will want to see your results to 30/6/2012. Figures for 30/6/2011 will be too old by then.

Even when your income falls short and appears to fail the bank’s initial servicing check, not all hope is lost. By working closely with both myself and your accountant, we can often unearth pertinent information about your business that can mitigate large deviations. For example, a start-up business may have a lot of one-off expenses in the early days, which a lender might take as being not ongoing or recurring expenses. Also if you renew a certain piece of equipment or attend courses or training one financial year, you won’t necessarily have this same expense every year, so future years’ net profits could be higher.

My advice to self-employed applicants is to tell us what has been going on in the business, as a solution may not be obvious to you, but will be to a trained eye. Some self-employed applicants are too good at reducing their taxable income, which can come back to bite you when it comes to applying for credit. In this new age of regulation and responsible lending, there is increased pressure on lenders to confirm an applicant’s ability to meet minimal servicing requirements.

The most important thing to do is plan ahead and talk to us first before committing to a purchase. That way you can be properly prepared and preapproved before you proceed.

Parts of this article were sourced from the website www.yourmortgagemagazine.com.au