If you’re self-employed and you get a regular salary from your business, you can now use it as income to apply for a home loan.
Before this change, most lenders required self-employed borrowers to provide at least 2 years’ worth of tax returns, financials and notices of assessment to calculate their borrowing power.
This meant a lot of time spent wading through tax returns and financial statements to get an accurate estimate of your borrowing power. The process is simpler and faster now, as banks only require six months of payslips and an accountant’s letter stating that your business is more than able to cover its debts.
What Works As Proof Of Income?
A self-employed applicant can use ONE of these three methods:
- 1. Six months salary credited to an account
- 2. A payslip showing more than six months of Year-To-Date (YTD) income OR
- 3. A payslip with less than six months YTD income and a recent financial year PAYG Payment Summary or tax return
Any of these methods will require an accountant’s letter on company letterhead with:
- The date your business started trading
- Evidence of sufficient profits to meet business commitments
- A line saying your salary is regular and continuing
An accountant’s letter is not required if you can provide profit-and-loss statements for the last two years showing you made a profit in each year.
Self-employed borrowers who do not take a salary as income can use alternative proof.
How Does The Bank Assess My Income?
The bank will use only the income that you receive as a salary to assess your ability to repay the loan. So if your business is making a large profit, it will be ignored. That’s not a problem if you can easily afford the loan. If you are borrowing to your limit, however, it may be better to provide financial statements or apply for a low-doc loan so you can be assessed based on more of your income.
Are You Self-employed?
We know lenders who will use a commonsense approach to calculate your borrowing power and accept alternative evidence of income. Call us on 1300 889 743 or fill in our enquiry form.