Mortgages for the self- employed
What are the most common things to consider as a self-employed borrower?
Know your numbers
Lenders would look at the income and expenses in your business to get an indication if you as an individual borrower would be able to repay a mortgage based on the profit the business makes. The lender would also be able to add back expenses like depreciation, home office expenses, and interest on business borrowing to arrive at an income measure that will be used in the mortgage application.
Time in Business
Lenders as n general rule require 2 years’ worth of financial history in the form of Accountant prepared financial statements. Some lenders are prepared to from as little as 6 months’ history in the form of GST returns and bank statements, but it would depend on the type of industry that the business is operating in.
Lodge your tax returns
Ensuring you lodge your tax returns at the end of the tax year not only helps you to keep track of your numbers but also makes it so much easier when applying for a home loan. Lodging your returns on time will mean that you can plan much further in advance and know what you may be capable of borrowing. The lender would also want to know if your taxes are up to date and would be able to see that by referring to confirmations of your tax returns.
Claim all expenses
Business owners often claim each conceivable expense in order to reduce taxes, but that can reduce your borrowing capacity. The cash jobs that you are not including as part of your income also reduce your borrowing capacity.
There are options
The more prepared you are the better your borrowing options will be. Ask your accountant to explain the makeup of your financial statements and what the things are that you need to make the lender aware of when presenting your application for mortgage approval.
You as a business owner would need to engage a mortgage adviser much sooner to get everything in place to have a good outcome with your mortgage application than someone for example who draws a salary.
