Home – New Forums Money matters Self-Employed and want to get a home loan?

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  • #979563
    Cjay
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    I’ve found that a lot of people who are self-employed, or considering starting their own business often forget a crucial part of their financial life-plan: Will banks lend to me to get a house? As I’m sure there are many FS’ers who are aware that in many cases banks will look quite conservatively at our self-employed brethren, it may pay to consider timing when you should start your own biz so that you can buy the house you want/need, expand or start a property portfolio, refinance or consolidate debt. It is a little disheartening having to tell a young couple that they cannot build the house of their dreams when they want, because the husband has recently gone down the path of building a business from the ground up. Likewise, having clients with equity that they cannot access to expand their business is a reality that with some proper planning, can be minimised.

    Some things banks like/want:

    In most cases banks want to see self-employed individuals to have had the business for for two full financial years. This is the main hurdle for many business owners. There are some institutions which will accept less time, some down to 12 months but other less than desirable terms (minimum 30% deposit etc). These banks might not be big 4 (though there are times when they do go through!), but they can have flexible policy and products.

    generating reasonable returns and generally- expanding. You pull in 100k net profit after tax, great! But next year you take in 90k. Now in terms of dollars, it’s still a reasonable amount, but bank credit teams can get very scared of seeing downward trajectories. With a good accountant and a mortgage broker, this can be do-able in the right circumstances, which in many scenarios the solution is to declare more income. Add-backs, depreciation, these will all help your serviceability also.

    But there are also some good things! There are products which can roll business loans (read high interest rates!) into loans at residential rates, which can be potential several percent cheaper per year. Likewise, with a clear plan from the outset of your lending plans alongside your business plans, you can compliment both your private and business needs (buy the house of your dreams, whilst pump needed capital into your business to expand!).

    I may be rambling, but I find that this is an area that entrepreneurs are really letting themselves down in too often. I’d rather see people achieving their goals, than post-pone them due to external factors..

    #1115235
    bridiej
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    We have this problem at the moment. Husband went part-time in March so I could work full-time in my business. Of course, this means that my income for 2011/12 wasn’t as much as it will be this year (since the majority of it I was working part-time) and his last two pay slips (which the bank look at) are down as he is now working less hours.

    I was actually pretty angry with the bank over it all. We’ve been with the same bank since we arrived seven years ago, always overpaid our mortgage every week (currently paying the same amount as we will be paying with the new mortgage) and they ummed and ahhed about lending us the money! As it is, we are borrowing about 55% of the value of the property so have a huge deposit…

    I’ve had a mortgage for over 20 years and never once been late with a payment… but apparently your history counts for nothing these days.

    Needless to say, we’re now going through a broker who has it sorted for us, but it was a very stressful week when we weren’t sure if they would lend us the money.

    It seems very unfair that they will only take your last tax return figure and not current income, as mine has doubled from this time last year so they’re not actually looking at the true picture…

    They also won’t take into account any Family Tax Benefit you receive unless you’re receiving it fortnightly (why?).

    Very odd.

    #1115236
    Cjay
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    Unfortunately bank loyalty has gone out of the window. Long-term customers being rejected for simple products is becoming increasingly common. The introduction of credit-scoring with many institutions means that you are categorised based on a matrix which will give you a negative score for things like not having a home telephone! Madness which is behind the times.

    It is good to hear you’ve got a broker who found a solution to your problem. :)

    #1115237
    Greg_M
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    I’ve been self employed in one way or another for nearly 40 years, 30 years ago there was genuine relationship banking, now if they can’t tick the boxes in an automated process you’re up against it (if your self employed), which I think is sad, considering micro business and people who take responsibility for their own lives are probably underpinning economic productivity but get bashed at all levels, not just by banks.

    I try to avoid my bank but recently I decided to incorporate, so I needed to change some accounts around and delete a couple, thought it would be an over the counter process, nah… had to get an appointment with my new “relationship” manager (needed one of those years ago), she was extremely helpful I will admit and did a great job but for the next ten day’s I was plagued by cross selling for financial and insurance products, I was polite at first and gave them all a brief if they wanted to pitch but not one followed through, except to send me masses of paperwork that required a breakdown of my DNA.

    My delight at a return to relationship banking was short lived. I’m afraid the grumpy old man came to the fore and we’re back to the status quo, you don’t call me and I wont call you.

    More power to anyone providing financial services to the self employed.

    #1115238
    TehCamel
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    we’ve just been through this ourselves.
    Came back from London, both of us with fairly shaky income over the past 24 months.. R got a job and I thought screw that, I’m working for myself. Came April/May decided to start planning towards buying a house “no you can’t do that yet” says the broker – need to have at least a year of the business.
    So we finished off the tax year, and he has got pre-approval over the line for us, on what is a fairly shaky income.. still, it’s enough for whatr we need. We just have to look further out

    #1115239
    AgentMail
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    Interesting post, thanks for sharing. I used to be a mortgage broker, and I was always worried with Lo-Doc self declared incomes, as the ATO does have the right to view these documents and check against your declared tax income.

    I have put on hold any plans of moving for the next 2 years, as I want to have two strong years (don’t have much equity – thanks GFC!) before applying. It also means that I am trying not to maximise tax benefits and reduce our assesable income, in order to present the best picture to the banks

    #1115240
    Cjay
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    AgentMail, post: 129777 wrote:
    Interesting post, thanks for sharing. I used to be a mortgage broker, and I was always worried with Lo-Doc self declared incomes, as the ATO does have the right to view these documents and check against your declared tax income.

    I have put on hold any plans of moving for the next 2 years, as I want to have two strong years (don’t have much equity – thanks GFC!) before applying. It also means that I am trying not to maximise tax benefits and reduce our assesable income, in order to present the best picture to the banks

    Another poor soul who was in the ranks of MB’s. Good to hear you escaped the cat-herding alive. :) Ah Lo-Docs, they’re increasingly dropping out of the market, there are a couple repackaged ‘Lite-Docs’ which aren’t as hair raising on the MB’s side. I don’t mind them though, they give opportunities, particularly for business owners, to get more options available to them. Particularly in the realm of getting 12 month self-employed across the line.

    Prudent planning there Agent in regard to your circumstances, you’ll reap the rewards as a result.

    #1115241
    Mortgage Expert
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    bridiej, post: 129333 wrote:
    It seems very unfair that they will only take your last tax return figure and not current income, as mine has doubled from this time last year so they’re not actually looking at the true picture…

    I do feel for you. You mentioned a few things that got me thinking though.

    People are very quick these days to say how loose the banks have been with giving out credit and quite often you hear people tut tutting them over it. However when these same people have trouble getting finance the people’s attitudes change and they complain about the stupid bank being so picky!

    From a lenders point of view your past performance (when you may have been a PAYG employee) amounts to little. The bank’s have to cater to the lowerst common denominator of personal fiscal stupidty. You wouldn’t take a loan if you knew you couldn’t repay it right? Unfortunately not all members of the public are as astute nor is every small business going to work.

    The reality is the banks have a responsibility to ensure you are not getting in over your head. A couple of months of good trading is not really sufficient (generally) to establish whether the income from the bsuiness will be at that level consistently.

    If on the other hand you know for sure you can manage the loan and can prove it but don’t have the two years figures yet; then all power to you. Just expect a few hurdles to jump and possibly being selective on the lender you chose.

    ps I am in the same boat. Patiently waiting for my next tax return to roll around.

    #1115242
    Mortgages In Focus
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    Yes it is tough for self employed people however not as tough as it used to be.

    The big 4 banks should be avoided. They are incredibly conservative (although they have got a tinsy bit better in the last few years out of necessity).

    A good broker will be able to help you and depending on your circumstances find you the best lender for your needs. There are quite a number of lenders out there that work well with self employed and small business and they really understand the needs of these business types.

    It is a very stressful time when you have your own business that is why it is important you get a mortgage broker to do the work for you. You will find that stress will be taken away from you and solutions will be found.


    Mortgages In Focus
    http://www.mortgagesinfocus.com.au

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