Being self-employed comes with a lot of flexibility. You’re your own boss, you make your own holidays, and you choose who you work with. But when you’re looking to buy your own home, securing the home loan for it can be quite an exercise.
Why is that?
Lenders see self-employed applicants as high risks particularly with consistencies in income and ability to turn a profit. Generally, the lenders are going to asses your income through 2 years worth of tax returns for yourself and your business. Lenders need to verify your income. It’s the law. But as a self-employed individual, your tax returns may not be up to date and your income is fluctuating.
If you’re self-employed unable to prove your income traditionally to the banks. There is a solution for you. We’re going to navigate your journey of securing the finance for your home through low doc home loans.
But before anything else, let’s define our vehicle, low doc home loans.
What are low doc home loans?
Homeownership for self-employed Australians was a difficult proposition until low doc loans came along. For an average Self Employed Australian getting a mortgage from lenders can be quite hard.
Low Doc Home Loans are designed for self-employed individuals who are looking for a way to get a mortgage. It allows you to get a mortgage with just a few documents.
The main documents that can be used to verify your income are
- 6 to 12 months of Logged BAS Statements where the lender uses a formula of between 40> 60% of Sales as income (depending on the type of business)
- An Accountants Letter verifying your income.
- 3 to 12 months of Business bank statements
- Old tax returns (over 24 months) in combination with current financial statements.
What do lenders look for in assessing a low doc loan?
It’s important to note that every lender has different policies, however, these are the standard criteria for most lenders.
Length of ABN/GST registration
Borrowers are required to have a registered ABN and possibly GST registered if sales are over $75,000. Most Lenders require ABN to be registered for 2 years. Some lenders also accept an ABN registered for as little as 6 months.
Some Banks accept low doc loans up to 60% LVR at standard rates. On the other hand, others will consider up to 80% LVR on Purchases. Generally above 60% for refinancing or cash out, we will need to apply through a specialist lender.
Reasonable income declared for the business
Lenders will ensure that the borrower’s declared income and current assets are in line with business and age. For example, an 18-year-old courier with no assets would be declined if they declared an income of $200,000.
The major banks will not approve a low doc loan if you have any problems with your credit card history. There are however other options available in the marketplace for low doc loans if you do have any marks against your credit file.
All Funders will take a risk on the applicant but not on the security. Properties that are in non-metro or regional population areas or unique, in disrepair or difficult to sell are usually not accepted or come with restrictive terms.
Most Funders don’t allow cash out above 60% LVR and require proof of how the loan funds will be used. However, as always there are options available in the marketplace to secure equity above a 60% LVR.
Most lenders will not refinance an existing loan to Consolidate Debt above 60% LVR. However, as always there are options available in the marketplace to secure equity above a 60% LVR.
|● No tax returns or assessment notices|
● No financial statements
● Income verification by a number of alternative means
|● Generally, a higher interest rate|
● Higher deposit required
● Restrictions on security
● Lower loan to value ratios
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