7 must-knows when getting a mortgage as a business owner
A lot of the time, when you’re self-employed, the biggest roadblock you’ll have when looking to buy a home is that Lenders will want to see the last two years of your financials (instead of the few months of payslips your non-self-employed counterparts need to produce).
“What if I didn’t have the best 2 years though?”
“What are some ways I can best prep as a biz owner?”
“Can they look at just 1 year?”
We hear ya.
In this blog, we’re going to throw down 7 must-knows if you’re looking to get a mortgage as a business owner.
#1 Profits and Add-Backs
When it comes to assessing how much you can borrow, Lenders traditionally are going to be looking at your profit and loss for the last two financial years (although note, there are some instances where they can look at point #4 to help with this!) AND add back things like your wage and depreciation.
So for example, as a business owner not only will they look at the “wage” you pay yourself but they may also add back in the profit you’ve made too in your business.
Your accountant should be able to help you collate this info, and all the calculations can also be done easily with your trust mortgage broker.
#2 Paying Yourself a Wage
The number one question banks want to know is whether you are able to service the loan.
Essentially this means your income needs to be sufficient to make the repayments but also have a bit of a buffer to be able to service the loan should the interest rates wiggle and rise. (Again this is something a mortgage broker can help you calculate!)
Therefore, a suggestion is as soon as you can, even if it’s a little bit, make sure you start paying yourself a wage from the business and where possible maybe even hit the boss (aka you) for a well-earned pay rise.
#3 Are you up to date?
No one likes paperwork, but when it’s time to buy a home, it’s time to get all the things in order and up to date. This includes
Your business and personal tax returns
BAS
Current bank and loan statements
Current details of investments
When you’ve got these at the touch of a button? It’s a big old exhale moment for everyone involved.
#4 Save yourself time with a mortgage broker
Being a business owner, likely means you’re wearing all the hats. And chances are without getting all psychic on you, I’d probably say that you’d much rather focus on ROI-generating activities than be on hold with a bank to check on their offer or head into a bank during the weekdays.
When you see a mortgage broker for an hour, it’s the equivalent of going to see 20-30 (dependent on your mortgage broker) banks and sussing out their offers. Talk about Rolodex of options!
Another pro? Each bank is different in terms of what they look at too for serviceability. Therefore if you’d like to explore a scenario where the bank only looks at 1 year’s serviceability, this is an option too.
#5 Make Friends with Your Accountant
In fact, during this time? You may as well pop your trusty numbers guy (or gal) on speed dial because they’re going to be a big part of you gathering all the things for your applications.
Let them know you’re in the process of buying a property, they will already have an idea about what they’ll need to put their hands on for this process.
Provide your broker with your accountant's details and vice versa, we’re going to keep in touch as needed to get you into the property you’re dreaming of.
Your mortgage broking side-kick will work closely with your accountant to maximise your income or financials to better your chance of getting that all-important approval!
#6 Your Debts and Liabilities
Just like a regular PAYG employee, you’ll need to show lenders all of your personal debts and liabilities. That’s everything from
car loans
personal loans
credit cards
other mortgages
These all reduce your capacity to borrow and form an important part of the application process.
#7 Your Expenses
The bank also wants to know the nitty-gritty of your spending habits. From what you spend on Uber Eats to how often you're using Afterpay and what portion of your wage makes it into savings, the bank wants to know it all, and they’ll take a keen interest in your financial lifestyle before approving your mortgage as a part of their responsible lending due diligence.
If you want to get proactive and uncover your spending habits before the lenders?
But you don’t need to fear the banks as a self-employed person looking to purchase or refinance.
As a general rule, your mortgage repayments shouldn’t account for more than 30% of your gross income, a budget can help you see if this is feasible before you begin the application process.
The team at Lenny are experts at assisting people business owners to secure their dream homes every single day.
Want to chat about it? Book a virtual cuppa and let's start the ball rolling on finding you the very best loan.