Hi There, I've had a change in my 'career path" and I have recently gone from being employed by a company to being self employed and running my own business as a sole trader. In regards to finance I've heard it's hard to get finance when your self employed – is this the case?
Also when the bank assesses your serviceability position do you have to be in business longer than three months – as per the usual employment check that the banks run?
Cheers
Wayne
Its not hard to get finance if you are able to show tax returns and are making a profit – many do not and need to try for Low Doc or No Doc loans (20 to 30% deposit generally needed). Most banks want you to be self employed for 2 years with some accepting one year. For No Docs you only (generally) need 1 day self employment history.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
When you are self employed the lenders look for security in your employment or larger deposit. Generally you will need to have 2 years financials, one year to see your income and the second to compare and for serviceability lenders will generally take an average of the two. If you have 20% deposit plus the funds for your fees and charges some lenders will consider 12 months self employment and if you have 40% deposit plus the funds for your fees and charges other lenders will consider short term self employment and ask you to declare your taxable income for serviceability, provided you have an ABN number. You should only declare income you pay tax on, as your declaration maybe subject to audit by the Tax Department.
Cheers,Dean Lynch
Principle Mortgage Consultant
Australian Mortgage Brokers
E: [email protected]
W: http://www.deanlynch.com.auHey Wayne,
In your circumstances, you may well have some difficulty getting finance. As the other guys mentioned, lenders will generally want to see 2 years business tax returns before they will lend to you on a full doc loan. They will sometimes make exceptions if you have moved to self employed in the same industry that you were previously employed in, but I got the impression that you've switched career paths entirely.You may find it possible to do a Lo Doc loan, but ensure your MB checks that your situation is acceptable to the lender. Alternatively, as Terry suggested, have a look at No Doc Loans.
Hi Guys,
Thank you for your feedback – much appreciated.
Yes – I'm currently earning an average wage of $800 p/w and have been writing tax invoices for all my work so I will be claiming this at the end of the financial year – which I guess I can then use as proof of income. In the meantime I assume it's good to keep a full record of accounting etc in MYOB or something similar for proof?
In regards to security would the equity in our existing properties help – or would it be the "servicability" aspect of a loan that I may have problems with? Reason being that we own our PPOR (worth $500k) out right and have a rental worth $330k with $241k owing on it. Therefore I was thinking that perhaps the equity in these properties could act as the "deposit" – or do the banks look at you and say "you may own property though with no income proof you can not pay the weekly repayments on the loan"? (hope that makes sense)
cheers
wayne
Hi Wayne
Banks will still look at your employment and income (unless No/Low Doc).
If you have an unencumbered property, what you could do is to get a No Doc loan to the value of 70% and then use this as deposits for the next ones.
eg. $500,000 x 70% = $350,000
Using $350,000 as 30% deposits on further properties would enable you to buy more than $1mil in additional property.
All theoretically possible without declaring an income.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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