Obtaining a mortgage is a complex process, and it can present even more significant challenges for small business owners. Unlike salaried employees, small business owners often lack regular pay slips as evidence of stable income. It is important to note that facing these hurdles does not mean you should abandon your aspirations of owning a home.
Small Business in Australia
The definition of a small business in Australia can vary depending on the sector and the context. Different organizations and agencies have their criteria for determining minor business status. Here are some common points that can qualify an organization as a small business:
According to the Australian Bureau of Statistics, a small business typically employs fewer than 20 people. The Australian Securities and Investments Commission considers a small company to have an annual turnover of less than $25 million, no more than 50 employees, and assets under $12.5 million. The Australian Taxation Office defines a small business as a business with an annual turnover of less than $10 million.
As a business owner, the freedom and flexibility of being self-employed are likely aspects you cherish. However, obtaining a home loan can require additional effort on your part. Lenders scrutinize your financial situation, considering both your business and personal finances. Due to the need for comprehensive information, the absence of readily available data may delay the application process.
Home Loan Tips
Prepare Your Documents
Ensure your tax returns are current. As a small business owner, your income and expenses may fluctuate, complicating lenders’ assessment of your borrowing capacity. To gain a comprehensive understanding of your financial situation, most lenders typically require the following documents:
- Two years of Personal Income Tax Returns
- Two years of Business Income Tax Returns
Twelve Months of Business Activity Statements
Keeping your tax returns up-to-date will expedite the loan application process. It is advisable to consult your accountant to ensure your tax records are organized before applying for a home loan. In cases where you don’t have complete financials, some lenders may accept a Borrower Certificate of Income Declaration signed by your accountant as an alternative means of verifying your income.
Seek an Accountant’s Help
Consider consulting an accountant for guidance. To ensure accuracy and clarity in assessing your financial figures, seeking professional advice from an accountant is highly recommended. Discussing your business’s financial situation with an accountant can provide valuable insights.
There are instances where your financial records may not accurately reflect your annual earnings. For example, you might have experienced significant one-time expenses in a particular year or encountered changes in income due to personal circumstances. Obtaining a letter from your accountant can serve as supporting documentation, confirming and explaining any relevant information to the lender.
Engage a Mortgage Broker for Guidance
It is advisable to consult a professional mortgage broker to simplify applying for a mortgage. They possess the expertise to assess your situation and help you navigate various mortgage options available in the market.
A mortgage broker will thoroughly compare different mortgage products, considering your unique circumstances, and recommend the most suitable one. Additionally, they will act as your representative and negotiate with lenders on your behalf, addressing any potential obstacles that may hinder the approval of your home loan application.
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