Resolving the most advantageous mortgage for those who have an income from employment is usually trouble-free. However, the situation with business income applicants is much more complex .
The standard assessment of entrepreneurs’ income by banks is that their income is the tax base after deducting the tax return for the last tax period divided by 12 months .
Possibilities of obtaining a mortgage for self-employed in other ways
Some entrepreneurs – natural persons – optimize their incomes and tax returns because they want to pay as low taxes and levies as possible. Lender therefore allows entrepreneurs to obtain a mortgage through other income assessment methods . These methods, however, narrow down the number of applicants who can actually get a mortgage.
Mortgage approval based on turnover
Almost all lender, in addition to the standard income assessment by accepting the tax base after deducting the tax liability, can also accept certain% of the turnover , which is also stated in the trader’s tax return. In most cases, this amounts to 10 to 30% of the annual turnover divided by the number of months in a year, or 12, which is calculated as the monthly net income of the sole trader. In the case of a small company, which also has lower turnover, in many cases the self-employed will not receive sufficient income to repay the mortgage to buy an apartment or build a house. Mortgages for traders with higher turnover have quite decent options.
Selected groups of sole traders
Among the self-employed, the best are those who have stable and guaranteed income . Most of these are IT services, artists or athletes who work on the basis of contracts that guarantee their income. Eventually, entrepreneurs pursuing professions which are a prerequisite for membership of the chambers , e.g. doctors, lawyers, designers, etc. Lender is able to accept their turnover tax returns up to 60% under certain conditions.
A real client case – a mortgage for an entrepreneur performing IT services
We successfully helped a client doing business with IT in the mortgage business. This client, a young married man, wanted to buy a housewarming house worth 180,000 dollars. Since he was not employed and his wife was on parental leave at the time, he was worried about getting a mortgage from Lender. Since he had an optimized tax return to save on taxes and levies, it was not easy to find a suitable bank.
The client had an annual turnover of 36,000 dollars and the company with which he had concluded a contract for the performance of services, contractually guaranteed him a monthly income of 3,000 dollars. Moreover, this amount was paid regularly to his account and the client had no other loans. For a mortgage of 180,000 dollars the client needed really high income. We found him a bank that accepted 60% of his turnover, as his income was guaranteed by his customers . From his monthly calculated income of USD 1,800 and his wife ‘s income of USD 230, his mortgage “went out” and was successfully approved.