Will the bank accept the income from my previous job?

Any general questions you might have in regards to loans and finance.
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alexjones
Posts: 34
Joined: Thu Jun 20, 2013 6:50 pm

Will the bank accept the income from my previous job?

Post by alexjones »

Hey guys, I am thinking about buying a house in a few months and depending on the price of the house, I may need to borrow 95% from the bank. There’s a bit of a problem – I am self-employed and I have only been running my business for about a year now. This means that I don’t have any tax returns to show to the bank and prove my income. However, I do have tax returns from my previous job. Could I show this as a proof that I can afford to repay the loan?

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Otto Dargan
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Re: Will the bank accept the income from my previous job?

Post by Otto Dargan »

Hi and welcome to the forums alexjones,

Most lenders will not lend to you if you have been self-employed for less than one year. This is because they see new businesses as having more financial uncertainty and it is hard to prove your income since you do not have tax returns yet.

However, if you are unable to provide income evidence through traditional means then lenders can take the income from your previous job as a proof that you can afford to repay the loan. Your previous job can indicate how experienced you are in that line of job. It also assures the lenders that you would be able to go back to working for someone else on a similar salary if you decided to close your business.

You would however need to meet the following criteria to have the lender use the earnings from your most recent job as income evidence:
  • Your business must be in the same line of work as your last job.
  • Your business must be less than 18 months old.
  • You must show that your business is currently trading.
  • Your business should ideally be in a service industry with low expenses.
  • You must be borrowing less than 80% of the property value.
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

alexjones
Posts: 34
Joined: Thu Jun 20, 2013 6:50 pm

Re: Will the bank accept the income from my previous job?

Post by alexjones »

Okay, glad to know that banks will accept income from my last job. But i am bit worried about the loan amount. Like I said, I am hoping to borrow more than 95%. Is there any options for me to borrow this much?

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Otto Dargan
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Re: Will the bank accept the income from my previous job?

Post by Otto Dargan »

Hi alexjones,

The only way you would be able to borrow more than 95% of the property value is by applying for a guarantor loan. The guarantor would need to secure your loan against their own property and if they do this then you may be able to borrow 100% or more with a guarantor loan.

There are various benefits of a guarantor loan such as:
  • You can buy the house immediately since you do not need a deposit.
  • You save money by not paying an LMI premium.
  • You may get discounted interest rates from some lenders.
  • You can consolidate some minor debts such as credit cards when you buy your home.
  • You can limit the size of the guarantee.
Please keep in mind that only the borrower’s parents are allowed to act as a guarantor by most lenders. There are some who may immediate family members such as siblings, grandparents, spouses, partners or adult children. If you do decide to have someone other than your parents to guarantee your home loan then you will need to additional lending criteria to qualify.

You can fill in our free assessment form to see which kind of loan you may qualify for or call us on 1300 889 743 to speak to us directly.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

alexjones
Posts: 34
Joined: Thu Jun 20, 2013 6:50 pm

Re: Will the bank accept the income from my previous job?

Post by alexjones »

Oh really? We can borrow over 100% if we get a guarantor to secure our loan. I will explore this option further and call you when I have made a decision on whether to apply for this loan or not.

airenwaren
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Joined: Thu Jun 27, 2013 9:21 pm

Re: Will the bank accept the income from my previous job?

Post by airenwaren »

Hey Otto, I am also self-employed and I am planning to buy a small one-bedroom flat in Sydney. Could you tell me what documents I would need to provide to the bank in order for them to verify my income and approve my loan?

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Otto Dargan
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Will the bank accept the income from my previous job?

Post by Otto Dargan »

Hi airenwaren,

If your business has been running for a couple of years now and you have the financial records then the normal way for you to verify your income would be to provide:
  • Financial statements (Profit & loss and balance sheet) of the last two years.
  • Business tax returns of the previous two years.
  • Personal tax returns of the previous two years.
  • Notices of assessment of the previous two years.
If you are unable to prove your income using the above documents then you can submit any of the following form of document to verify your income:
  • BAS statements from the last year showing a turnover of your business.
  • An accountant’s letter verifying your income.
  • Business bank statements from the last three to six months showing a high turnover of your business to indicate its profitability.
  • Tax returns which is older than two years.
  • Interim financial statements showing a high turnover.
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

airenwaren
Posts: 41
Joined: Thu Jun 27, 2013 9:21 pm

Re: Will the bank accept the income from my previous job?

Post by airenwaren »

Oh okay. Thanks for letting me know about this. I appreciate it!

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