How does income servicing for self employed home loans work?

Some lenders now average tax returns. Below is an example of how the income is averaged

2011 returns $60,000 profit

2012 returns $140,000 profit

Total income $200,000 over 2 years

Income that can be used in servicing = $100,000

As can be seen from above, this can have a dramatic effect on how income is calculated for servicing a home loan.

Most businesses in their first year have start up costs, and this normally means the income for this year is less.

Having said that, there are still lenders that will take the view that the last years tax return is a more accurate assessment of where the business is at and only request the most current tax return.

As long as the loan to value ratio is 80% or below then the last figure is the one that can be used.

In the above example, the income would be serviced at $140,000.

Update

For PAYG applicants it may also be possible to use Year To Date figures that include Bonus/Overtime payments to calculate an income figure.

This is extremely beneficial for those borrowers who:

• regularly receive overtime or who may work irregular hours (eg shift workers, Nurse’s, Miner’s, Bus Driver’s, long-term casual employees etc)

• may receive regular ongoing commissions/bonuses in addition to their base salary (eg Real Estate Agents, Sales Rep’s, Performance Managers etc)

Simply provide two consecutive computer generated payslip’s confirming at least 3 months YTD gross income, then annualise the YTD gross figure from the most recent payslip.

No need to provide two years groups certificates to confirm overtime and bonuses.

This can really benefit those applicants with less than 12 months in the current job but have over 2 years continuous employment in the same industry.

As always, If you need any help, please call us on