According to the Australian Bureau of Statistics (ABS) one in ten Australians are self-employed! In 2009 there were approximately 944,000, self-employed individuals. The current Global Financial Crisis has meant that many career opportunities have opened up for freelancers, contractors and entrepreneurs!

Those in the following roles typically work on a self-employed contractual basis:

Sales roles:

• Real estate agents,
• Car sales,
• Financial planners, and
• Insurance brokers.

Consulting roles:

• Management consultants,
• IT professionals, and
• Business analysts.

These jobs have a high earning potential, however despite this, many individuals may have difficulty obtaining a home loan!

What do most banks think?

The number one problem faced by self employed contractors is that the bank uses the same policy to assess their income that they use to assess the income of any other business.

So what is the problem with that?

• A standard business may not make a profit in the first year, whereas a contractor makes a profit from day one.
• A standard business has a high level of overheads, whereas a contractor does not.
• Small businesses have a high failure rate, whereas contractors are often highly paid specialists with more work available than they can handle.

As a result of this most lenders will require you to be in your current business (or ABN) for the last two years and will ask for your last two years tax returns to assess your income. They will then take the average or the lower years income to use in their assessment.

If you can’t meet these requirements then your loan is declined, no matter how good your credit history is or how low a risk your loan is. This is because if a bank cannot prove that you can afford to repay the loan, then due to legislative requirements they cannot approve it!

What is the solution?

Many people believe that they need to apply for a low doc loan in order to get approval, however this is not always the best option! You may be able to qualify for a normal “full doc” loan!

We know that looking at a self employed contractor’s past income is not an accurate way to assess their current income. Therefore, we work with lenders that look at the contract & invoices with your most recent tax return rather than just past tax returns on their own.

Please call us on 1300 965 504 or enquire online and one of our mortgage brokers will let you know if you qualify for a mortgage.

How will our lenders assess your income?

Your income is calculated net of GST and is normally annualised over 48 weeks to allow for four weeks unpaid holiday & sick leave.

For example, if you earn a daily rate of $660 inclusive of GST, then your annual income would be calculated as follows:

$660 / 11 x 10 = $600 per day, exclusive of GST
$600 x 5 = $3,000 per week gross income
$3,000 x 48 = $144,000 gross income per annum, allowing for unpaid holidays & sick leave

We would also need your most recent tax return to confirm consistency of income. We can then build a case for the bank to accept the most realistic of the two methods of assessing your income.

What if you earn commission income?

The method used by the banks is more complicated for commission income contractors. They will look at the previous invoices that you have received over the last three to twelve months and then extrapolate that income to work out your annual income. If you can provide a longer history of earnings then this will allow the bank to more accurately assess your annual income.

What do they require?

Our lenders are used to dealing with self-employed contractors and know that many have the capacity to repay the loan amount. They generally require the following:

Regular income/daily rate contractors:

• You must have at least one tax return showing your contracting income (part year or full year),
• A copy of the contract / agreement,
• A letter from your employer confirming the hours you work and the rate that you are paid (please contact us for a template), and
• A copy of your two most recent invoices.
• Evidence of your prior employment / income (if only in your role for a short time).

Commission income contractors:

• You must have been in your current role for at least twelve months,
• You must have at least one tax return showing your contracting income (part year or full year),
• A copy of the contract,
• A letter from your employer confirming the nature of the employment and the year to date amount that you have been paid, and
• A copy of the last three months invoices.

Contact us today!

Whilst you may need to provide more documents than for a conventional application, if you meet the above requirements then we can get you an approval. Our brokers are self-employed contractors themselves and therefore understand your situation far better than a loan officer at a bank!

Please call us on 1300 965 504 or enquire online and one of our mortgage brokers will let you know if you qualify for a mortgage.