Low Doc only option for self employed?

N

nanaichi

Hi,

I am wondering what other "self employed" experience anyone has found recently with the various banks?

I have two res IP's in Adelaide (LT valuation $510k & $470k). Currently res loans secured against property totalling $660k with ANZ. Been with them for years, and also have company accounts + commercial loan with them.

I approached bank to see if I could increase to 80% LVR against the residential property to reduce a commercial loan that's on a much higher interest rate. Idea was to continue same repayments against the commercial loan and pay it off quicker, then pay off res loan.

Unfortunately they were unable to assist as my personal tax return shows only minimal income (basically only from IP's rental income) as my company (pty ltd) previously had retained loses. Current "profit" from company looks very good going forward. Still it didn't matter, they would only look at what my personal tax return had in it, and not consider future income.

It seems my only option is to go "low doc", but ANZ have a limit of 60% on low doc. Looking around I see on NAB website they will do low doc to 80% but you have to pay LMI, plus rate would be 0.65% higher. Not so worried about the rate (it's still lower than the current commercial loan rate), but the LMI I don't like.

Just wondering if anyone had discovered any other options when your personal income is very low, but you can prove income from other sources?


cheers,

nanichi.
 
Since you are going for lo-doc above 60% - you have to pay mortgage insurance for most banks because you are considered a riskier borrower. But I know some others funders who can do a higher LVR without LMI (but you pay slightly higher interest rate).
 
Most lenders have LMI over 60% for lo doc, but as Aaron suggested, there are exceptions. I think you'll find though that these lenders tend to compensate for the cost of LMI in other ways it it will often cost you more.

You've mentioned that you earn money from other sources. Lenders can be reasonably accomidating of this, but they need evidence (they can't just take your word for it). Future profits are speculative and there's no guarantee that they'll evenutate.

If you're self employed, there's lots of things you can do to reduce your tax. The consiquence of this is it's more difficult and expensive to borrow money. You can't really have it both ways. If you don't want to pay LMI but you need more than 60%, declare lots of income this year and pay the tax on it. :eek:
 
Hi Aaron,

Thanks for such a quick response! What sort of documentation do these other lenders need? Are company accounts & recent BAS statements suitable?



cheers,
nanaichi.
 
Nowadays most lenders require 6-12 months of BAS before they can accept a lo-doc loan. Some lenders don't need BAS, all they need is an income declaration and an accountant's letter confirming that you can afford that income you have declared...obviously you wouldn't need to provide company financials because you made a loss the previous year and averaging it out would be bad for your serviceability.
 
Hi Peter,

(thank you too for such a quick response)
That seems to be the way of things. Unfortunately my accountant has been too efficient :)

To put more income through to myself, and pay more tax, is going to require waiting until July '12 before the next tax return goes though which is a bit of a pain.

It's good to hear though that other lenders can be a bit more accommodating. ANZ didn't seem to be willing, which was an good lesson given I have a long history with them... It used to mean something, but these days it counts for little.

The other income from company sources is pretty much provable. BAS statements over past while, client contracts etc (clients pay monthly), stable costs etc.


cheers,
nanaichi.
 
nanaichi said:
Unfortunately they were unable to assist as my personal tax return shows only minimal income (basically only from IP's rental income) as my company (pty ltd) previously had retained loses. Current "profit" from company looks very good going forward. Still it didn't matter, they would only look at what my personal tax return had in it, and not consider future income.

, but you can prove income from other sources?


cheers,

nanichi.
Click to expand...

Firstly, what sort of lost is your company declaring? depreciation ? equipment? capital lost? etc A lot of company declared lost can be "added back" as a declared profit for the bank's serviceability purpose, make sure you get an experienced broker or banker to go through the tax return for you ...as a lot of bank staff simply look at the "end result" - your declared profit or lost only...and this may not be a true figure on your cash flow.


Regarding Low-doc, it may help in your situation as you have the flexibility to show a declared accountants letter only + 3 month BAS to show profit etc...But if you go down the low-doc path, i would suggest looking at tier-2 lenders rather then the big 4 banks.

Tier-2 lenders:

- 80% LVR for low doc ( rate goes up exponential to LVR)
- Choice and flexibility of different type of paper work you want to provide for profit/income
- Overall deal; term loan can be 40 years,


Another option is to refinance your commercial loan to a better rate/overall deal- since you have resi properties, commercial lender like bankwest would be happy to refinance the comm deal + secured by Res property as well ( yes X-cross) at a overall rate as low as 7.30% or Fixed of 7.8% for 5 years.

Regards
Michael
 
Hi nanaichi

Welcome to the Forum!

If your 2010 Tax Return was artificially low because of losses brought forward, but your 2009 Tax Return / Financial Statements had similar working figures to 2010 and also to Financial Statements / BAS 2011 then there are plenty of lenders which will allow add-backs of extraordinary losses or of financial commitments since completed

I was at a Bank of Melbourne / Bank of South Australia / St George Broker Workshop today: The ‘St George’ lending policy has always demonstrated a positive attitude towards self employed applicants. The applicant is required to provide two years financial / tax returns, but unless there is more than 130% difference between the years – and this may be the case with yourself - it is only the most recent which is taken into account for servicing.

As you would be able to show the reason for the drop in assessable income and the resumption of stronger taxable income for 2011 you would probably get quite a good reception from them, particularly as you are not looking to go above 80%LVR and your loan structuring strategy may fit in well with their Portfolio package.

If you have been dealing directly with ANZ up to now you may have a Relationship Manager with ANZ but not know where to start when looking for alternate lenders. When I refinanced myself from ANZ a couple of years ago they rang because I had held residential & commercial mortgage loans with ANZ continuously since about 1985, but they couldn’t accommodate my low doc 80 increase so it was time to go. I still have 1 x commercial loan with them – at 10.1% (gasp!) but the balance is now not worth chasing a rate for.

However, before you go down the low doc track, it may be worth while talking to a Bank of Melbourne / Bank SA / St George accredited broker. If you can get your financials accepted so much the better, but if not, there are still some good quality Self Certified / 12 months BAS or even ‘Accountant’s Verification’ low doc deals out there

Hope this helps
Kristine
 
The word you are looking for may not be lo doc

but as Mick and Kristine have alluded...........its probably more like Add back : )

CFLs arent easy for some lenders/ brokers to understand, and as with many the short cut used to be the lo doc

Many many lo doc loans that have been written in the past could have been full, but for the lack of willingness of the broker or lender to do the extra groundwork

Just another reasoon why thousadns of brokers have run away over the last 2 years

ta

rolf
 
Hi all,

Many thanks again for everyones thoughts, and the welcome! I have been lurking on the forum's reading many of the posts for the past few weeks, amazed at the knowledge and thinking if only I had discovered the forum earlier.

Might be best to explain a little more on my situation/setup...

Currently have 2 res IP's I bought back in the early 2000's, plus a commercial IP purchased back in 2006. Commercial IP is under a property trust+ptyltd structure. There is then another trust/ptyltd structure that leases the CIP and it's this entity that earns the main $$'s.

The res IP's are in personal name, and there are two loan's using them as security. One loan is paid by rent received in my name, and the other is paid by the property trust (loan is in personal name though). The property trust also pays for the commercial loan secured against the commercial property.

In my personal name taxable income for 2010-2011 was just 16k (income mostly from residential rents minus costs).

Property trust was basically neutral and so was main company. Adding back in depreciation though would show a further 60k for that tax year. So not negative.

2011-2012 will show based on current revenue 200k profit before depreciation but with retained loses from original startup of business a few years ago the distribution to me will be still $0

Main profitability for the company was from Jan 2011 onwards and this is reflected in BAS statements after this time.


For current lender this is all interesting, but they wouldn't look at it. They just look at the 16k personal income and wonder how it is I can be wearing shoes?

Given the slightly complex arrangement (not really once it's there on paper), I was thinking the low doc option might be the easiest way. I've no problem with supplying full financials about the company if the lender is willing to look at them, and probably the situation going forward.

While I can understand it would make life a lot easier for them if I waited until Jul '12 I would like not to have to :)

I think I will have to look into this further in the morning.


cheers,
nanaichi.
 
I think you just spoken to an staff member who's not not willing to put in the hard yard and decypher your tax return ..sounds like you don't need to go down the low-doc path ( it be easier, but costly).

Contact a good broker and explain what you want to achieve and she/he would be able to decypher and provide you with solutions and options.


Regards
Michael
 
Aaron_C said:
It's every business's dream - being your own landlord :)
Click to expand...

Given the large capital nature of the business it certainly makes it a lot easier to get approval when there was a need to remove a wall. :)

Although as I always tell my friends, my boss is the worst boss in the world. Makes me work 7 days a week, on call 24 hours and pays below minimum wage.. still the plus is he doesn't care if I take a two hour lunch break...

gotta love working for yourself!
 
Mick C said:
I think you just spoken to an staff member who's not not willing to put in the hard yard and decypher your tax return ..sounds like you don't need to go down the low-doc path ( it be easier, but costly).

Contact a good broker and explain what you want to achieve and she/he would be able to decypher and provide you with solutions and options.
Regards
Michael
Click to expand...


Michael, it certainly felt that way. Although the bank manager who I have known for years did try a few options, but apparently found it was now bank policy. Actually, it was also said it was now government regulations put onto the banks - but I didn't buy this. It felt more an ANZ thing.

I will look further into other providers who might be able to do this without going low-doc. As you say, low-doc is easier but comes at a cost.

cheers,
nanaichi.
 
nanaichi said:
Actually, it was also said it was now government regulations put onto the banks - but I didn't buy this
Click to expand...


The good old NCCP trick...if anything goes wrong and the customers whats an explanation just blame NCCP lol

Regarding bank's policy, its ANZ policy to add and accept add backs....However tier 2 lenders tend to be a lot more flexible and "forgiving" in the low doc field.

Regards
 
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