Hi home loan forum,
I’m a self employed IT consultant and I want to buy a house. I know that it is more difficult for self employed people to get home loans, which is why I’m researching before I try to get one. I’ve read that the banks may be able to add back some of my expenses and increase my borrowing power in the process. Can anyone give me a few examples of the expenses that can be added back?
Examples of some expenses that can be added back
- Otto Dargan
- Mortgage Specialist
- Posts: 7730
- Joined: Sat Sep 06, 2008 5:55 pm
- Location: Sydney, Australia
- Contact:
Re: Examples of some expenses that can be added back
Hi Cici. Welcome to the forums.
Lenders may add back some expenses that you have incurred that reduced your taxable income. However, these expenses only include those that have not been a real expense or ongoing commitment.
Below are a few examples of add backs:
Otto
Lenders may add back some expenses that you have incurred that reduced your taxable income. However, these expenses only include those that have not been a real expense or ongoing commitment.
Below are a few examples of add backs:
- Additional superannuation - Lump sum contributions to super in excess of your minimum requirements may be added back.
- Company car - Tax deducted expenses associated with a car that is used by your business and yourself may not be added back. However, they may often add in an extra $3,000 to $6,000 in income to compensate for this.
- Net Profit Before Tax (NPBT) - Profits that you have retained in your company may be taken into account. If you are not the sole owner of the entire company then the lenders will simply assess your share of the net profit.
- Trust distributions - In most cases, your business income that you have distributed to some of your family members through a discretionary trust may be added back. However, many lenders may not accept this add back, or will only do so if you provide a letter from your accountant to confirm that the beneficiaries are not financially dependent on this income.
- One-off expenses - An extraordinary expense may often be added back. However, you may need to provide an accountant’s letter to confirm this.
- Depreciation - Some lenders may add back depreciation to your taxable income because it is not a day to day expenses even if it is a tax deduction.
- Rental property expenses - Lenders may add back depreciation on your properties, management fees, repairs, and other rental property deductions such as negative gearing.
Otto
Re: Examples of some expenses that can be added back
Wow, that’s a long list of addbacks! Thanks for your help, Otto.
My income has almost doubled in the past couple of years from when I first began working. I’ve been wondering how the banks may consider the increase in my income. Can you tell me something about this?
My income has almost doubled in the past couple of years from when I first began working. I’ve been wondering how the banks may consider the increase in my income. Can you tell me something about this?
- Otto Dargan
- Mortgage Specialist
- Posts: 7730
- Joined: Sat Sep 06, 2008 5:55 pm
- Location: Sydney, Australia
- Contact:
Re: Examples of some expenses that can be added back
Hi Cici,
Lenders tend to be very wary if you have an income that has increased or decreased by a large amount in the last two years:
Cheers,
Otto
Lenders tend to be very wary if you have an income that has increased or decreased by a large amount in the last two years:
- You may be able to find some lenders who may use the lowest of your income figures for the last two years.
- Another lender may simply use the most recent year’s income as shown on your tax return.
- Some lenders may average the two years income or take 120% of the lowest year’s income.
- You may also find some lenders who may add back the expenses shown on your returns.
Cheers,
Otto
Re: Examples of some expenses that can be added back
I didn’t expect your website to be so informative! Thanks for everything., Otto. I’ll give you a call by the end of the coming week to discuss my situation. Have a good day.
Re: Examples of some expenses that can be added back
Hi,
I’m also self employed although it hasn’t even been a year since I transitioned from PAYG. I want to take out a mortgage to buy a home in Mitchell. I think I’ll be applying for a low doc loan so is there anything that I need to watch out for in such a loan?
I’m also self employed although it hasn’t even been a year since I transitioned from PAYG. I want to take out a mortgage to buy a home in Mitchell. I think I’ll be applying for a low doc loan so is there anything that I need to watch out for in such a loan?
- Otto Dargan
- Mortgage Specialist
- Posts: 7730
- Joined: Sat Sep 06, 2008 5:55 pm
- Location: Sydney, Australia
- Contact:
Re: Examples of some expenses that can be added back
Hi albee,
Financial institutions tend to place greater restrictions on low doc loans because they are a higher risk. You may look out for some potential issues like:
Cheers,
Otto
Financial institutions tend to place greater restrictions on low doc loans because they are a higher risk. You may look out for some potential issues like:
- Larger deposit - Most lenders normally require a deposit of 20% of the purchase price when taking out a low doc loan. However, some lenders may require less.
- Higher interest rates - Depending upon the lender and what sort of verification or supporting documentation that you are able to provide, you may have to pay higher interest rates. However, some lenders may offer the same low rates as they do for full documentation home loans.
- Lenders Mortgage Insurance (LMI) - If you borrow more than 60% of the property value then mortgage insurance will normally be applicable.
Cheers,
Otto
Re: Examples of some expenses that can be added back
Some lenders may offer low doc borrowers the same rates that full doc borrowers get? Wow! I’ll give you a call as soon as I can to learn more about this. Looking forward to speaking with you