Avoiding 2 years self employment lending

I have read a few threads of people who have had issues once they have become self employed as they need a minimum 2 years of tax returns before banks will lend and am wondering if this was a potential way around this:

This would only work for someone in a good financial position who can afford to set up a company and will be able to generate good income as soon as that company starts.

Theory:
Start a Company pay yourself or your spouse a wage. After 3 months you would have adequate payslips to borrow through a big 4 bank.

I understand there would be potentially some hurdles to jump through but in theory could this work without being illegal?

 

Nope doesn’t work.

 

Any idea what stops it from working?

 

The fact that you are essentially self employed.

 

Think about ways to structure the company so you are not the owner or controller.

 

So there is potential ways for it to work but not simply by using a company structure?

 

Yes, but you have to think outside the square.

 

Lenders look up the employer abn on the payslip. If it shows you or a related related party, they want financials.

 

@Terry_w it sounds a bit over my head to be honest who would be the best type of professional to discuss/set this up with?

Do they all @tobe im with Commonwealth and they took income coming into my account on the same day from the same person (a sole trader) for over 12 weeks as proof of income.

I totally understand @Rolf Latham but it's a little different when it's a tradie who is working as a subbie, basically has unlimited work and is only looking to borrow 20% of a $1M property. But your point is taken

 

They all do to diferent extents.

It’s also important to list all of your assets and liabilities in the application. If you forget to list the company you are a director of, whether you try it on with a payslip or not, it’s a little bit like fraud....

2 of the majors will consider SE income after 12 months. There’s also low doc lenders to explore.

 

Cba and a couple of other lenders take 3 months salary credits or payslip for income verification. I’d suggest they still do an abn search on the employer.

 

The little bit like fraud is what I was hoping to avoid hahaha
Thanks for the input

 

What's wrong with actually having a properly functioning business for 2 years and reporting your "Real" earnings? It will definitely be in your best interests to do so. Fabricating the honest earnings of your efforts will be a very short term win. Problems will no doubt manifest over time.

 

They're still real earnings simply looking to fast track being able to borrow again after changing to a subcontractor.

This isn't a scenario for me currently simply looking at options and ideas moving forward.

There's nothing wrong with waiting but if there's a way to fast track things a couple of years and be able to purchase a $1M property before it potentially increases to $1.2M then there's $200,000 reasons to look outside the box.

 

A broker first as you want to know the effect of various situations on borrowing capacity. Then a lawyer to discuss the actual legal implications of structuring a business in such a manner.

 

What market are you looking to buy in that you expect 20% growth for $1M+ houses in the next two years? Not a scenario that I would be losing too much sleep over in current climate tbh.

 

CBA the existing lender - would more than like do it for the right application.

Same industry, evidence of previous income (tax return), current income - transaction account matching up with P&L / BAS along with a decent enough deposit.

 

Its not as though self employed borrowers without 2 years history have no options - there's still a very big market for this type of lending.

• One option commonly used is a temporary type facility - i.e. a higher rate low doc product used for a year or two to bridge the time gap to full doc loans.
• Other options is to demonstrate your income and seek credit approval - this would need to be a strong case.
• We've had spouses of company directors/owners borrow before (with less than 2 years ABN history) - a tax return showing the income is legit, statements showing its paid and a full explanation about how and where it is derived from is the way to go. It may not always work in different credit environments, but some lenders are more understanding here than others.

In general, deposit size makes a big difference here. Realistically it gets cost prohibitive and expensive when 20% deposits aren't available. If theres more, thats great, usually the chance of approval gets far high & the product/fees associated with the transaction will just come down with larger deposit sizes.