Obtaining A Mortgage If You Are Self-Employed
Getting a loan when you have your own business can prove to be tricky, especially if you have just started out, not too long ago. While there is no silver bullet for self-employed clients, there are a few ways of going about obtaining finance that may suit your circumstances.
A disclaimer here, in that this article is not all-encompassing, when it comes to obtaining finance, as a self-employed person, every scenario can be unique, as businesses can be quite complex in there nature and scenarios. I am just touching on a few points here, and it is always best to have a chat with a mortgage broker in Adelaide, like us, if you would like to explore your options further.
One of the most common issues that I come across is that the business in question is a reasonably new one. In the beginning, you have many overhead costs. Many lenders have a policy that they will average the last two financial years profit for the business out, to come up with the income that will be used for servicing the loan. Quite often, your first year is a loss, too, so what happens is you end up with a very poor figure for servicing. As long as you are confident that it is onwards and upwards for your business with regards to income, there are still lenders out there that will look at your last financial year’s income in isolation. The property that you are financing would need to be at the right loan to value ratio of at least 80% and under. What this essentially then does is, let’s say, for example, your business in its first financial year had a $50000.00 loss, and the next had a $100000.00 profit. Many lenders would average the two, and you would have a $50000.00 income to work with on your application. With the latter example, you would be able to use the $100000.00 profit for servicing provided your equity in the new property was at the 80% mark.
Your new business may be that new that you have not completed a full financial year yet. Quite often, though, this business owner has started something very successful, and the profitability of the business is high from the start. From a standard lender point of view, normally, you would require the ABN of the business to be registered for two years, as well as the business being registered for two full financial years, before you would be able to be looked at for finance.
Here the option may be to look at the non-conforming lenders who offer low-doc loans for businesses. Quite often, they will look at ABN’s that have been registered for 12 months, and will verify income from two sources to corroborate their accuracy. With regards to the income verification, it may be something like providing six month’s BAS statements and a letter from the company accountant, verifying the profit for the establishment. This is a lot easier than waiting out the two years or getting your accountant to, finally, finish the company financials. Everything comes at a price, though. To avoid Lenders Mortgage Insurance on a Low-Doc loan, you will need to have at least a 40% deposit going into the property, and as this is deemed a riskier type of loan due to lower document requirements, the interest rate will be substantially higher. However, this may be a means to an end and get you into the much-needed home, until you are in a better position to refinance to a better rate, or product.
On the topi of low-doc loans, the other side of the spectrum that I often see is that the client is a well-established business that has been around for a long time. The business has grown into multiple entities and has many different arms with trusts involved, as well. Doing the financials for this behemoth takes a long time. Following the money trail through all the different companies and trusts can prove to be too hard even for the bank that you are applying to. Here again, a Low-Doc solution, be it a conforming or non-conforming lender, maybe the answer.
As said earlier in this piece, when it comes to self-employed solutions for finance, I am not even scratching the surface with regards to the number of different scenarios that could possibly come about in this space. It is very seldom straight forward, and rarely are two the same. Applying for finance as a self-employed person, it pays to have as many options as possible. A good mortgage broker should be able to provide you with these and give you guidance on what product may suit you. Castle Mortgages is a Mortgage Broker in Adelaide, and we like to think we are very good at what we do. Have a look at what our clients say here.
If you would like to have a chat about your specific scenario, whether you are just starting to think about finance or are ready to pull the trigger, we are here to help, so get in touch today.