Self employed finance help

[R.A.M.]

Hello everyone,

First time post, great forum, great resource!

I'm after some advice on obtaining finance given I am self employed and I'm wanting to get back into property.

By "get back" I mean that 8 years ago my then partner and I owned our PPOR but she bought me out when we separated. I'm almost ready to seriously consider my first IP since then, I think, but I'm fully aware of the stricter lending terms for my situation.

Some personal details, I'm 32, run my business +5 years and pay myself $60K pa incl super. I've been paying myself a 'wage' since Jan '13 (PAYG, super etc), prior to that I just drew down cash each fortnight. Not sure if that goes against me.

I do not have a PPOR atm, I live with my defacto partner in her home rent free. She owns this unencumbered from previous marriage. We have a child on the way. I know a lot of people will say to draw out the equity in her home to start investing but it's not an option - long story but she is not comfortable doing this just yet.

I have $50k saved and on target to have a 20% deposit on a $350K IP within the year. I plan to increase my salary end of year, but I'm assuming I only have serviceability on $300K or less?

But I'd like to hear from the experts here what I should be aiming for and what I should be doing to give myself the best chance of obtaining finance. The last time I had a mortgage I was an employee.

In terms of my business, how much will banks lean on it's performance; ie. my business is somewhat seasonal, some months are solid, some ok, some ordinary.

Any advice and benchmarks to aim for are greatly appreciated.

Thanks. Again, great forum.

 

[Terry_w]

Pretty straight forward.

Most lenders will average the last 2 years company financials and take into account the income.

Since your (her) PPOR is paid off using the cash is not such an issue, but depending on how far you want to go you may want to consider borrowing a higher LVR % and keeping as much cash as you can for the next one.

 

[Peter_Tersteeg]

The best thing you can be doing to qualify for a mortgage as someone self employed is to pay yourself a regular salary. Well done!

Lenders are required to verify your income. As self employed the only way to reliably do this is via tax returns. If you're paying yourself a salary you have payslips but this doesn't work for the self employed.

What it does mean however, is that you've got your book keeping in order and your business financials are under control. Lenders will want 2 years tax returns and given what you've done to this point, you should have no problems coming up with this info.

I've also noticed that business people who can pay themselves a regular income tend to be running their business well. It means they're running at a surplus and have the confidence to pay themselves regularly. Those who draw money periodically tend to only take money out when they really need it or when they've had a big cash injection. It's a sign of a volatile business with uncertain cash-flow.

As mentioned, you need 2 years tax returns for yourself and your business (in some cases only 1 year is required). You've only been paying yourself since Jan 2013, but I suspect that this won't be a problem. If you can pay yourself confidently you'll have already been doing things prior to that which will create a good impression to the banks.

 

[Mick C]

If you have 2 years full consistent tax return - than you can apply for a loan over 80% LVR ( ie no need for a 20% deposit) and yes with your $60k per year income without knowing your full financial you will be able to afford a $350,000 loan.

If you don't have 2 years consistent full tax return - Than you may have to consider a low doc loans or a "lite doc loans-" generally require a 20% deposit.

** You need to have funds for the stamp duty as well.

Regards

 

[Aaron_C]

If you have 2 years tax returns you can get a mortgage.

 

[R.A.M.]

Thanks for the replies