The rules under which you are considered self-employed vary between banks and you should check with your mortgage broker to see which banks will consider you self-employed if:
- You are a director of a business
- You are a full or part-owner of a business
- You work in a business owned by a family member
Typically a business owner operator will be required to prove income by providing 2 or 3 years tax returns for both themselves and 2 or 3 years tax returns and financial statements for their company or companies. If you have been self-business for less than two years borrowing will be more challenging because lenders want to be sure you have consistent income to make your loan repayments.
How each banks determines a single figure for your income to go into the home loan calculator varies considerably, for example
- Personal income increasing/decreasing – is highest year, lowest year, lowest plus percentage of increase, average used?
- Company profits increasing/decreasing – is highest year, lowest year, lowest plus percentage of increase, average used?
- Allocation of company profits for personal borrowing – all, none or proportion of profit used?
- Company losses for personal borrowing- all, none or proportion or proportion of loss used?
- Can add-backs be applied to say interest or personal expenses incurred by the busines
Low Doc Loans (Lo Doc Loans)
For self-employed people who can’t provide a full set of financials there as mentioned above there are alternative ways of verifying income which may be accepted by some lenders offering Low Doc Loans.
Alternative income verification may include one or more of :
- Bank statements
- BAS statements
- Accountant statement
In the past Low Doc income verification could rely on a personal declaration but with changes to the law in the last years lenders will not rely on personal declarations alone.
Key Finance has the calculators for each lender on our panel so we can provide you with more accurate calculations of how much you can borrow.