Running your own business can be the most rewarding job there is but it can pose some challenges when looking for a home loan.
If you’re self-employed, there are two main pathways you can go down when applying for a home loan.
Low doc loans are often the go-to for self-employed applications, however it’s not the only way as you could also apply for a fully income verified loan pending your circumstances.
Let’s take a look at both of these options.
A Fully Income Verified Loan.
Qualifying for this type of loan will be assessed on the type of income verification you are able to provide a lender.
With this loan the lender will rely primarily on the taxable income you declare as an individual, essentially separate from your business earnings.
It is key to note that the lender will still need to see all of your business financials and you should look to provide either:
- Last two years income tax returns for individual borrowers, or
- Last two years income tax returns for company or business
If your tax affairs are all up to date, this is the easiest and cheapest way to get a home loan.
Low Doc Loan
A low doc loan is typically used for applicants that cannot provide all of the paperwork required to verify their income in a traditional way. This could be due to the business being relatively new, or you may not have lodged your tax returns as yet.
With a low doc loan the lender will look at some limited financials of the business. Items they may require include:
- Your registered business name and ABN
- Business Activity Statements (BAS) for the previous twelve months so that a lender can review your turnover and assess loan affordability
- A letter from your accountant confirming your income
- Bank Statements from your primary business account for the past six months
- A self-signed income declaration form
Low doc loans typically will come with a lower LVR and higher interest rate. All loan types may not be available as low doc options, so it’s important to chat to your broker about your requirements to find the right loan for you. Each lender is different but you can normally expect to pay 1-2% higher interest rate and for the borrowings to not go above 80% of the value of the property (if refinancing) or the purchase price.
In addition to the income questions, all borrowers need to provide adequate ID, have an acceptable credit history, and meet the valuation requirements.
Borrowing for Business Use
It may be possible to borrow against your personal assets to fund business expenses or growth. If you do this you must seek professional taxation advice and understand the implications for you personally.
One popular product if borrowing for business use is a line of credit loan. A line of credit functions like a giant credit card. You will be given a credit limit based on a percentage of the value of your property. Provided that you keep below the credit limit and pay a minimum of the interest each month you can use the available funds at will.