Self-Employed Home Loans

An add-back is an expense deducted in the accounts that does not represent cash leaving the business, or that will not continue. Lenders accept different lists, so this is another place where lender selection changes the answer.

The practical requirement is that each add-back is visible in the financials and explainable. An add-back an assessor cannot trace to a line in the accounts is an add-back that will not be allowed.

A number of lenders will assess a self-employed borrower on a single year of returns. It is not a lesser product and it is not alt doc. It is a full doc assessment run on a shorter history.

• Usually requires at least two years of continuous ABN and often GST registration for the same period.
• The single year needs to be the most recent one, lodged, with a notice of assessment.
• Some lenders also want interim financials or year-to-date figures to confirm the trend has held.
• Prior experience in the same industry, including as an employee, strengthens the case considerably.
• Pricing is generally standard where the file is otherwise clean, which is what makes this route worth pursuing before alt doc.

The order we work in is deliberate. Full doc with two years first, then one-year full doc, then alt doc. Each step down usually costs something, so we do not skip to the last one because it is easier to package.

Where the returns are not lodged, are materially out of date, or genuinely understate the current business, alt doc verification is the alternative. Income is evidenced with business activity statements, business bank statements and an accountant’s declaration rather than tax returns.

It prices above full doc and generally caps at 80 per cent LVR. It is the right answer when the paperwork is the problem and the wrong answer when cash flow is the problem. Our low doc home loans page sets out the verification methods and the plan back to full doc pricing.

This is where a large part of our work sits, and it is worth being direct about it. Business owners frequently arrive with an ATO balance that has been growing quietly while wages, suppliers and rent were paid first. It is one of the most common reasons a self-employed home loan application fails, and one of the most solvable.

The general interest charge compounds daily, so the balance grows whether trading is good or bad. Lenders assess an ATO balance as a liability and as a signal, and an undisclosed one found on the file is worse than a disclosed one explained. The treatment of ATO interest for tax purposes has also changed, which is a question for your registered tax agent rather than for us.

Where the balance can be absorbed into a refinance, it usually should be. Our debt consolidation home loan page covers the mechanics, and the ATO debt consolidation hub covers the tax side, including payment plans, director penalty notices and garnishees.

Sole trader, company, trust and combinations of them all change how a lender reads your income. A trust distributing to a spouse, a company retaining profit, or a service entity paying you a modest wage each require a different assessment method, and not every lender handles each one well.

Which structure is right for your business is a question for your accountant. Our job is to know how each lender treats the structure you have, to package the file so the assessor can follow it, and to tell you where a structure is costing you borrowing capacity so you can raise it with your accountant.

Sole trader

You and the business are the same legal person. The simplest structure to assess, since the personal return carries the business result.

Company

A separate entity. Lenders look at both the company return and your personal one, and at whether retained profit can be counted.

Discretionary trust

Income is distributed to beneficiaries each year. The lender needs the deed and a clear picture of distributions, and lenders differ widely in how well they handle it.

Service entity

A second entity that charges the trading business for services. It can move where the profit sits, which changes which return a lender should be reading.

Retained profit

Profit left in the company rather than paid out. Counted by many lenders where you control the entity, and ignored by others.

1. 01

   Financials review

   We read the last two years properly and identify every defensible add-back before choosing a lender.

2. 02

   Route selection

   Two-year full doc, one-year full doc, or alt doc. We take the cheapest route the file supports rather than the easiest one to package.

3. 03

   Tax position confirmed

   Lodgements checked, any balance evidenced, and a decision made on whether it should be consolidated into the loan.

4. 04

   Lodgement

   The application goes in with the add-backs set out clearly and an accountant’s letter where it helps. Assessors approve what they can follow.

5. 05

   Assessment and questions

   Expect at least one round. Self-employed files attract more questions than salaried ones, and answering them fully the first time saves weeks.

6. 06

   Approval and settlement

   Unconditional approval, documents, then settlement. Any tax or trade debt being consolidated is paid directly.