Self employed home loans
Being self employed can make getting a home loan more complex, but it doesn’t necessarily need to impact your chances. A bank will still use the same basics concept of analysing your income and your expenses, to determine if you have the cashflow to service your loan. Essentially all other things remain the same, such as the security and loan structure.
Business types
What business structure you operate under (and what industry you’re in for that matter) shouldn’t have an impact on your chances, though it will impact the information needed to support your application.
The business structures that are common to banks are;
Companies
Partnerships
Sole traders
Trusts
Have a look at the information requirements for each in the ‘required information’ section below.
Eligibility
One of the most restrictive parts of being self employed is around eligibility. The biggest one is time in business. As a general rule banks want to see a minimum of 2 years of operation, and whilst it’s possible for businesses 12-18 months old, it’s certainly more difficult and you’ll generally pay for the privilege by means of a higher interest rate.
Assessment
The concept here remains the same no matter the business structure, again it’s more a matter of the documents you’re required to provide.
A bank will assess income by looking at two elements;
Money you make personally, generally by way of salary, director fees or drawings that is verified via your personal tax return
Profit in the business after salaries etc apportioned to your ownership in the business. As a general rule you need to own 25% of the business for the business profit to be attributable
When calculating business profit the basic calculation is sales less expenses, less any ‘add-backs’ outlined below.
Add-backs are items that either are not cash expenses to the business, or are not ongoing expenses or income.
The common add-backs are;
Non-recurring income (such as JobKeeper in most cases, sale of assets, grants)
Depreciation
Superannuation above the statutory amount required
Interest or lease costs that will cease with any new finance
Required information
The table below indicates what information a bank will require, based on your business structure. There are some items that will always be required, whilst some may be additionally requested based on the individual case.
The below is in addition to the standard identification documents, consent forms etc.
Sole trader
Individual tax return, 2 years
Notice of Assessment, 2 years
12 months BAS statements
May need;
Financials statements
Payslips (directors salary)
Partnerships
Partnership agreement
Partnership tax return, 2 years
Individual tax returns, 2 years
May need:
12 months BAS statements
Payslips (directors salary)
Company
Company financials, 2 years
Company tax return, 2 years
Company Notice of Assessment
Individual tax returns, 2 years
Individual Notice of Assessment
May need:
12 months BAS statements
Payslips (directors salary)
Trust
Trust deed
Trust financials, 2 years
Trust tax return, 2 years
May need:
12 months BAS statements
Payslips (directors salary)
