Getting finance as a sole trader

Hey guys,

Have a quick question if some of you with some experience in the matter can shed some light would be great.

I’m looking to apply for my first mortgage in the coming year and sorting out my tax as a sole trader at the moment and wondering how the bank views the income.

So, I’ve read they require two years of tax statements as a sole trader to consider you, as I’ve only been trading for one year coming on two, will they add the two years incomes together and average it to consider that your income, or do they put more weight into the most recent year’s income?

For example if last year was 20k net profit and this year was 60k net profit will they consider that to be 80k over two years which is 40k a year, or are they more likely to view the 60k which is the most recent statement to be more accurate to decide how much you can borrow?

Thanks in advance!

Jordan

 

Each lender is diferent.
Some just take the most recent year.
Most average or take the lower of the two if the difference is more than 20%. Speak to a broker and get specific advice.

 

Hi Jordan
Some lenders allow reliance on latest financial year... you will just need to explain reasons for increase - eg growing business in your case.

Some will compare the two and allow for a mark up on the first year, depending on percentage of growth.

 

All are different

Some like anz will simply go off the most recent years financials

Cheers

Jamie

 

CommBank for us was 1year last FY

 

CBA use one years financials for servicing purposes even for LMI deals which is great however they still require 2 years financials and any majors difference in the figures for the 2 years would need to be explained and justified. MyState works the same way as CBA.

Whereas other lenders such as ANZ, Westpac (@ 80% LVR) and St George (@ 80% LVR) just take one years financials. Note that some financials show one years figures and other company/trust financials show a comparison of 2 years. If its the latter and there is a material difference between the 2 years credit can always question this so nothing is guaranteed.

There are other requirements as well such as the ABN must be registered for at least 2 years.

You can get away with less and even projections in income but you will need to pay for risk (to the lender) accordingly.

 

Just curious, is it a very similar story with short term/airbnb rental income and disparities between the last 2 financial years?

 

Anyone know what AMP do?

 

AMP's self employed policy is old school - they require 2 years financials.

If the income from the latest financial year has increased by more than 20% of the previous year then they will take a maximum of 120% of the previous years income. If the income for the current year is less than the previous year then they will take the lower of the 2 year's income.