Can I get a home loan if I run my own business?

Any general questions you might have in regards to loans and finance.
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Zenith
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Joined: Mon Jul 15, 2013 5:54 pm

Can I get a home loan if I run my own business?

Post by Zenith »

Hi there,

I run my own cake shop in Perth. I have owned the shop for the past three years. Now that I got a steady income, I want to buy a house.

There is a two bedroom house close to my shop on sale for $600,000. I have around $120,000 in my personal savings, and I would have to borrow the rest.

I have heard that banks have different requirements for giving loans to self-employed people. What do I need to know before I apply for a home loan?

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Otto Dargan
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Re: Can I get a home loan if I run my own business?

Post by Otto Dargan »

Hi Zenith,

Lenders often consider self-employed home loan to be unusual as compared to loans offered to people working for others. As a result, lenders may have stricter requirements when it comes to lending to people who run their own business. However, if you can prove your income then lenders may be willing to give you a loan.

There are several documents required which you may be able to use to prove your income. These are:
  • Tax Returns: As you have been running business for five years, it is highly likely that you have been filing your tax returns. The tax returns from the last two years can be used to prove your income. However, these will also need to be backed by respective notices of assessment.
  • Pay Slips: Some self-employed people also draw a salary from their business. If you draw a regular salary, then you can always use your pay slips in order to prove your income to the lenders.
  • Financial Statements: Your profit and loss statements and balance sheets from the past two years also show how your business is doing and they can be used in assessing your income.
If you can provide these documents, then you may qualify for a full doc loan. You may be able to borrow up to 95% of the property value in such cases. As you already have $120,000 in savings, you need to borrow only $480,000 or 80% of the property value. If this is the case then most lenders may approve your home loan.

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

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Zenith
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Joined: Mon Jul 15, 2013 5:54 pm

Re: Can I get a home loan if I run my own business?

Post by Zenith »

Like any other business, my company too has been experiencing ups and downs. The profits increases one year and decreases the next. What do banks think about this? Is there any general rule that banks follow in these sorts of circumstances?

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Otto Dargan
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Re: Can I get a home loan if I run my own business?

Post by Otto Dargan »

Hi Zenith,

It is perfectly normal for self-employed people to have fluctuations in their incomes and lenders are also aware of this. However, if your profits have decreased, or even increased, by a large percentage then the lenders will be more cautious in lending to you.

Although there is no hard and fast rule for calculating your income, lenders generally consider your most recent yearly income. If it is increasing by large percentage, then they consider a maximum of 120% of the income from the previous year to be your current income. Some might take the average of your yearly incomes from the past two years.

Basically it is all dependent on how the individual lenders evaluate the risk associated with self-employed home applications. You can call us on 1300 889 743 or fill out our free assessment form if you need more information regarding your loan application.

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

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Zenith
Posts: 51
Joined: Mon Jul 15, 2013 5:54 pm

Re: Can I get a home loan if I run my own business?

Post by Zenith »

Thank you for the information, Otto. It seems like my application may be quite complicated since there are various issues relating to this. I am definitely giving you guys a call because I want to have this sorted out.

alexjong
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Joined: Wed Jun 17, 2009 5:21 pm

Re: Can I get a home loan if I run my own business?

Post by alexjong »

Hi!

I too own my own business. Although the business is good, it has only been eight months since I started it. So I don’t have any tax returns filed yet. I want to take out a loan for a house, but I am not sure how I can prove my income. Can someone give me some guidance?

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Otto Dargan
Mortgage Specialist
Posts: 7729
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Can I get a home loan if I run my own business?

Post by Otto Dargan »

Hi alexjong,

Most lenders are very wary of giving out a loan to borrowers with new businesses as they tend to have higher uncertainty. However, some lenders are more lenient than others and can consider some alternative proofs of your income. In such case, you may have to apply for a low doc loan. The proofs you may be able to use are:
  • Business Activity Statement : Your business account statement may also be used by lenders to ensure that you have access to sufficient funds to repay the loan.
  • Letter from your accountant : If you have not filed your tax returns, then you may be able to use a letter from your accountant as proof of your income.
  • Income from your previous job : One of our lenders may be able to offer you a loan by taking income from the last job in to account. However, your past job should be in the same line as your business.
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

alexjong
Posts: 60
Joined: Wed Jun 17, 2009 5:21 pm

Re: Can I get a home loan if I run my own business?

Post by alexjong »

Hi Otto,

Thank you for your time and your response. I will contact you later if I need an answer to any other questions.

Thanks,
alexjong

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