Browse Forums Home Finance 1 Oct 04, 2012 3:10 pm We went to talk to Aussie a few months ago, and he wouldn't take more than $11,739 of my income into account for the application (even though I made almost $30,000 before tax). The only amount he seemed to care about was the amount after taking off business expenses for that year, but not the tax back on those items. This cannot possibly be right?? It seems a bit ridiculous to me that I made close to $30,000 last year before tax, but only $11,739 is "eligible" towards our home loan application! I understand that the latter amount is what I had "left" after all the expenditures last year, but these included a car and some camera equipment, which we won't be paying for once we get a mortgage. It's as if they are taking these things off as a "regular expense", which they are not. Those things are things we CHOSE to spend money on, from the money I earned, and would not spend money on if we were paying mortgage repayments. I've also talked to a different broker, even though we probably won't be going through her, and she says the same thing; they just need proof of income BEFORE tax. It's the same with my husband, they take his salary before tax paid and before tax given back, into account for the application. Why is it different with self-employment?? Has anyone else experienced this? Settlement: 10.02.13 Slab: 06.03.13 Frame: 08.03.13 Lock-up: 05.04.13 Handover: 03.06.13 Build thread: https://forum.homeone.com.au/viewtopic.php?f=31&t=59555 Brisbane Photography Re: Anyone self-employed and had trouble getting a home loan 2Oct 04, 2012 8:20 pm With PAYG, for serviceability lenders take gross salary and then take the tax away to work out usable salary. With self employed, most lenders usually take the last two years of tax returns, and then depending on the situation use the most recent year, the earlier year, or average of the two years. In terms of the figure they use for the above, it is normally the net profit before tax (i.e total revenue earnt less allowable expenses otherwise known as the taxable income). Usually they allow depreciation and one off large expenses to be added back to the taxable income. The tax is then deducted from this figure for usable salary. It's about risk management for the lender. Say for example a self employed electrician might make $200K in a year, but spends $150K on parts, items, tools to do his job. The bank isn't going to allow $200K as the figure for serviceability as it's not viable, they will use the net profit before tax of $50K instead. Re: Anyone self-employed and had trouble getting a home loan 3Oct 04, 2012 8:29 pm I've been self-employed for almost just over 22 months, and our broker has told us we'll be accepted by lenders with that, and he asked for the last year's financial info to base our loan amount on. It doesn't seem like he allowed for any depreciation (on car and equipment) to go back to the taxable income, which is why I "scored" so low. I understand that they have to take things into account, but I sure as hell didn't spend $19,000 of my earnings on regular work related tools, etc. It's only because we happened to buy a car that I wanted to claim tax on seeing as it's for 80% business use, and we chose this year to upgrade a lot of our equipment that I have to declare as well if I want to claim the tax on it. Surely there is a way to separate regular work expenses from one-off's to get a more accurate picture of our finances? I actually considered doing PAYG, but my accountant advised me not to as it would look better to do it annually. Don't look so good now though. Settlement: 10.02.13 Slab: 06.03.13 Frame: 08.03.13 Lock-up: 05.04.13 Handover: 03.06.13 Build thread: https://forum.homeone.com.au/viewtopic.php?f=31&t=59555 Brisbane Photography Re: Anyone self-employed and had trouble getting a home loan 4Oct 05, 2012 12:57 am That's where your broker should have made notes in discussions with you on these one off expenses, and then advised this information in the application notes to the lender as viable addbacks. The lender is either going to accept it or not. Much the same as PAYG with salary sacrificing. If you can explain what the salary sacrifice amounts are for, and that they won't be ongoing once you obtain the loan, lenders will take the extra salary into account for serviceability. Re: Anyone self-employed and had trouble getting a home loan 5Oct 05, 2012 1:49 pm it depends how the items were bought and what your previous tax return looked like. if it was a once off purchase and it can be easily prove it be "once" off then it can be "added" back with certain lenders. Also the item that's declared as once off, can not be directed related to the job in a way that it's "required" every few years... Example: Self employed runs an home based IT solution company. - Buys a car worth $10,000 once off expense. In the above example, the $10,000 is added back to the income and then taxed. HOWEVER if the above client bought $10,000 worth of computers, the bank will argue that it's part of the job and "standard expense" and there's a high chance he/she would need to upgrade in 3-4 years time. Common add back; - Directors salary - Rent/interest** - Once off purchase - Once off repair - Depreciation of items, plants, equipment and building - Super over the standard 9% By the way is this a full doc loan? or low doc? im presuming full.. Regards Michael Michael Chan | Australia wide Mortgage Broker Michael@ShapeHomeLoans.com.au | 1300 74 5626 | Fax: 02 8212 8909 http://www.ShapeHomeLoans.com.au Re: Anyone self-employed and had trouble getting a home loan 6Oct 05, 2012 2:22 pm Oh okay, I see, so then my photography equipment probably wouldn't be able to be added back? We were always planning a full doc loan, but not sure what our options will be realistically. Settlement: 10.02.13 Slab: 06.03.13 Frame: 08.03.13 Lock-up: 05.04.13 Handover: 03.06.13 Build thread: https://forum.homeone.com.au/viewtopic.php?f=31&t=59555 Brisbane Photography Re: Anyone self-employed and had trouble getting a home loan 7Oct 05, 2012 2:28 pm MalinViktoria Oh okay, I see, so then my photography equipment probably wouldn't be able to be added back? We were always planning a full doc loan, but not sure what our options will be realistically. If you run a photographic business, then it be really hard to fight off photography equipment as once off... as it's your bread and butter, in another words it's your "stock". However you should have a bit of depreciation on your equipment that you can add back from the bank and claim back from ATO, as photography equipment only last 7 years from the audits point of view. How tight is your serviceability ? meaning if the bank did accept an extra 19k in gross income, would it be enough? if so...then it's only a matter of finding the right back; rather then changing the way they look at your tax returns. Bank's serviceability differ btw 5-8 % bank to bank. Regards Michael Michael Chan | Australia wide Mortgage Broker Michael@ShapeHomeLoans.com.au | 1300 74 5626 | Fax: 02 8212 8909 http://www.ShapeHomeLoans.com.au Re: Anyone self-employed and had trouble getting a home loan 8Oct 05, 2012 2:45 pm What is bank serviceability? Settlement: 10.02.13 Slab: 06.03.13 Frame: 08.03.13 Lock-up: 05.04.13 Handover: 03.06.13 Build thread: https://forum.homeone.com.au/viewtopic.php?f=31&t=59555 Brisbane Photography Re: Anyone self-employed and had trouble getting a home loan 9Oct 05, 2012 2:53 pm MalinViktoria What is bank serviceability? serviceability = How much will the bank lend you. are you short by a bit only? $50-70k .... Michael Chan | Australia wide Mortgage Broker Michael@ShapeHomeLoans.com.au | 1300 74 5626 | Fax: 02 8212 8909 http://www.ShapeHomeLoans.com.au Re: Anyone self-employed and had trouble getting a home loan 10Oct 05, 2012 3:03 pm We're going for a 90% loan, and I think we're actually okay in terms of what we can borrow even with my measly $11k income, at least that's what the Aussie broker told us last time. So I'm hoping I can at least bump it up to $20k (I just went through and separated all the one-offs from the regular expenses and came to just over $20k, hopefully the broker will accept that), we'd feel more confident that we'd get approved by a lender. What I'm worried about is that the brokers use the system generated ways to tell you if you can borrow a certain amount or not, but like several people have told me, these are not to be taken too seriously. So we want to make sure we look as good as possible for the actual lenders who will be going through and making the decision. Settlement: 10.02.13 Slab: 06.03.13 Frame: 08.03.13 Lock-up: 05.04.13 Handover: 03.06.13 Build thread: https://forum.homeone.com.au/viewtopic.php?f=31&t=59555 Brisbane Photography Re: Anyone self-employed and had trouble getting a home loan 11Oct 05, 2012 3:15 pm MalinViktoria What I'm worried about is that the brokers use the system generated ways to tell you if you can borrow a certain amount or not, but like several people have told me, these are not to be taken too seriously. So we want to make sure we look as good as possible for the actual lenders who will be going through and making the decision. system generated ...that's a bit lazy and slack. Michael Chan | Australia wide Mortgage Broker Michael@ShapeHomeLoans.com.au | 1300 74 5626 | Fax: 02 8212 8909 http://www.ShapeHomeLoans.com.au The biggest challenge will be if you take out a loan and then run out of money - you'll have an incomplete security and lenders do not like this so you can get stuck.… 2 19096 How much are you ahead in payments compared to where the build is at? Have you fully drawn down the loan? 5 11915 Hi guys, I want to do some floor levelling before laying the planks and am considering doing it with self-levelling or yellow tongue PB board. I am wondering which one… 0 6532 |