Getting finance as a sole trader

Discussion in 'Loans & Mortgage Brokers' started by Jordan Lewis, 29th Jul, 2018.

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How will they view the income over the two years?

  1. They will Base it off an average of the two incomes

    0 vote(s)
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  2. They will put more weight to the most recent income

    2 vote(s)
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  1. Jordan Lewis

    Jordan Lewis New Member

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    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
     
  2. tobe

    tobe Well-Known Member

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    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.
     
  3. Property Twins

    Property Twins Finance Strategists Business Member

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    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.
     
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    All are different

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

    Cheers

    Jamie
     
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    many lenders want 2 full years trading

    recently got one away with 7 mths

    but really the balance of the rest of the deal is the meat , lvr, other assets, previous work etc

    ta

    rolf
     
  6. Illusivedreams

    Illusivedreams Well-Known Member

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    CommBank for us was 1year last FY
     
  7. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    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.
     
    Silverson likes this.
  8. thatbum

    thatbum Well-Known Member

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

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    air bnb , room by room, sublets, etc different animals all together than SE

    ta

    rolf
     
  10. ChrisP73

    ChrisP73 Well-Known Member

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    Anyone know what AMP do?
     
  11. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    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.
     
    Silverson likes this.