What loan option is available for a self-employed borrower?

Any general questions you might have in regards to loans and finance.
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Cassie
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Joined: Tue Jul 02, 2013 7:01 pm

What loan option is available for a self-employed borrower?

Post by Cassie »

G’day everyone! I am looking to buy a house worth $550,000 and I need to borrow around $490,000. I run my own little coffee shop and it is 20 minutes away from the Sydney airport. I used to work for a well-known fast food chain before I opened this coffee shop. So basically what sort loan option is available for a self-employed person like me? :D

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Otto Dargan
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Re: What loan option is available for a self-employed borrow

Post by Otto Dargan »

Hi and welcome to the forums Cassie,

Loan applications received from self-employed tend to be assessed with more caution especially if they have only recently started their own business. This is because new businesses usually have more financial uncertainty and the applicant does not have tax returns to prove their income.

As a result, majority of lenders may require you to be self-employed for at least two to three years before approving the home loan. However, there are some who may accept loan application from people who have been self-employed for only one year.

Based on the income evidence you can provide to the lenders, you can either apply for a full doc loan or a low doc loan.

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

Cassie
Posts: 45
Joined: Tue Jul 02, 2013 7:01 pm

Re: What loan option is available for a self-employed borrow

Post by Cassie »

In what situation would a low doc loan be more suitable for me and what sort of income proof will I need to provide to the bank?

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Otto Dargan
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Joined: Sat Sep 06, 2008 5:55 pm
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Re: What loan option is available for a self-employed borrow

Post by Otto Dargan »

Hi Cassie,

You can apply for a low doc loan if you have a bad credit history and/or cannot provide evidence of your income. However, you would still be required some form of income evidence as per the Nation Consumer Credit Protection (NCCP) Act.

Any of the following form of document may be submitted as a verification of your income:
  • BAS statements from the last year showing a turnover of your business.
  • Letter from an accountant.
  • Business bank statements from the last three to six months showing a high turnover of your business to indicate its profitability.
  • Old tax returns older than two years.
  • Interim financial statements showing a high turnover.
In addition, if you want to estimate how some of our lenders assess your income then you can refer to the BAS Income Calculator. Generally, lenders calculate your income by using 40% to 60% of your BAS or business bank statements turnover. The percentage will depend on the business that you are in.

If you would like to know more about these then you can check out our website. We can also be reached on 1300 889 743 or you can fill in our free assessment form to see if you qualify for a loan or not.

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

Cassie
Posts: 45
Joined: Tue Jul 02, 2013 7:01 pm

Re: What loan option is available for a self-employed borrow

Post by Cassie »

Well, to tell you the truth I have only started running the coffee shop since last December. It’s a relief that I can show the bank statement as a proof of income. Thanks so much for your help! :)

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totoro
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Re: What loan option is available for a self-employed borrow

Post by totoro »

Hi I have only been running my business for a couple of months. Could I receive a home loan to buy a house worth $500,000?

Please help!

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Otto Dargan
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Joined: Sat Sep 06, 2008 5:55 pm
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Re: What loan option is available for a self-employed borrow

Post by Otto Dargan »

Hi totoro,

You can choose to apply with a lender who will look at your income from your previous job and take that as proof that you can afford the loan. However, you would still be required to meet certain criteria in order to have the lenders accept the income from your most recent job.

These criteria are as follows:
  • Your business must be in a similar line as your previous job.
  • Your business must be operating for less than 18 months old.
  • You must show that your business is currently trading.
  • Your business should preferably be in a service industry with low expenses.
  • You must not be borrowing more than 80% of the property value.
Lenders use this method of income verification because they want to make sure that you are already experienced in this line of work and if you were to shut down your business then you could always return to working for someone else on a similar salary. On this basis, you may be able to borrow up to 80% of the property value.


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

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