How do banks assess self-employed income?

Any general questions you might have in regards to loans and finance.
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Otto Dargan
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Re: How do banks assess self-employed income?

Post by Otto Dargan »

Hello oran-g. Welcome to the forums.

You can try out the self employed income calculator to get a reliable estimate of how the banks will assess your business income.

Self employed borrowers usually have an income that's somewhat open to interpretation. What I mean by this is that you may have a good idea of what your income means at present and for the future but lenders won't. They generally to rely on historical figures alone.

In most cases, lenders will use your last two years tax returns and then add back things such as depreciation. However, you should note that there are some banks that may use other methods to turn the figures in your tax returns into a figure for your income.

There are lenders that can accept the average of your last two years' income, while others may use the most recent years income. Different banks have different methods of adding back one off expenses or any additional superannuation that you've paid.

You can find out more about this on the self employed home loans page. Hope this helps. Do ask if there's anything more you'd like to know.

Cheers,
Otto
Otto Dargan
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P | 1300 889 743
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Otto Dargan
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Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: How do banks assess self-employed income?

Post by Otto Dargan »

Hi oran-g,

If you want to use forecasted income when applying for a mortgage, it does suggest that you're investing in your business to achieve a higher growth rate down the line.

However, the lenders will still require you to meet certain requirements such as:
  • Your tax returns must not be showing a loss.
  • You must be borrowing for business purposes. You can release equity as a business loan.
  • Your profit forecast must have been prepared or verified by a certified accountant.
  • You must have a security property for your loan.
Since one of the requirements is that you must be borrowing for business purposes, you won't be able to use forecasted business income to get a home loan.

You can check out our website for other alternative income verification options that are available. You can also discuss this directly with one of our self employed home loan specialists by calling us on 1300 889 743 or by enquiring online.

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

User avatar
Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: How do banks assess self-employed income?

Post by Otto Dargan »

Hi ladygaga,

Yes, you're right. Lenders do assess contractors as self-employed borrowers but the lending requirements generally depend and change based on your specific industry.

There are different types of contractors such as PAYG contractors, mining contractors, freelancers, journalists, IT consultants, etc. Although the assessment is similar, some of them are preferred more because of the success of this industry.

You can check out the above link or give us a call to learn more.

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

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