home loans for the self employed
You already know that running your own profitable business is difficult enough without the hassles of applying for a home loan .
Being self-employed, you previously may have been denied a traditional home loan due to lack of paperwork to verify your income.
The lack of paperwork may be because you may not have had the time to have your financials completed by your accountant, or you simply do not wish to disclose your financial affairs.
There is no need to despair; the alternative is to apply for a low-documentation home loan (often called low doc home loans).
Low-doc home loans
These are a new and very handy style of loan. These loans are intended for borrowers (both PAYG and self employed) who, for whatever reason, are unable or do not wish to provide full financial statements to the lenders.
These loans can be a great option for small business owners who may not have all their financials in order, or people who earn irregular income.
Lo-doc loans as the name implies means that the documentation required to support a loan application are lower.
Although you usually still need to complete your assets and liabilities position, you don't have to verify your income with proof of pay-slips and/or your business's financials.
The lender just requires the borrower to sign a statement declaring their ability to meet the repayments without undue hardship. You need to self-certify your income.
Some lenders may require the borrower's accountant to verify the declared income by signing a certificate.
The other important aspect of lo-doc loans is that the lenders usually like to see the applicant with a demonstrated clear credit history. That said, credit impaired applicants still can gain access to lo-doc loans. If this is you, you'll find lots more information on the credit impaired page.
Range of products
Again thanks to the competitive nature of the banking and lending industry, there remains a varied and wide choice of products available under the lo-doc banner.
Most lenders offer standard and premium lo-document products with the choice of fixed rate loans or variable rate loans. Thus self-employed people can choose between a basic loan with a low interest rate , a standard variable rate loan with more transactional features and a higher interest rate or even a line-of-credit loan with all the bells and whistles.
Are there any catches?
With less documentation required, obtaining a loan is faster due to the streamlined application process and while interest rates may be higher than a standard or full-doc loan you may be able to transfer to a full-doc loan with a lower interest rate, and at no cost, once you can provide the traditional forms of income verification .
Again due to competition, many lenders are offering lo-doc loans at the same interest rate as full-doc loans. Some even offer the pro-pack discounts on their products.
However, some lenders require lo-doc borrowers to take out lenders' mortgage insurance when borrowing up to 95 per cent of the property value and they may limit the amount you can borrow.
The challenge is to find the best loan with the best features for your particular circumstances. That's where we help you find a lending solution for your specific circumstances.
To summarise
$ less paperwork - requires self-certification instead of traditional proof of income
$ streamlined application process
$ can usually only borrow up to 80 per cent of property value
$ can get 95% lo-doc loans but interest rates are much higher
$ interest rate discounts may apply after specific time period or straight away
$ may be eligible for lower interest rate if able to supply tax returns at a later date
$ usually requires clean credit history
$ lenders may not lend in high risk areas such as inner city high-rises or large rural allotments
$ sometimes higher interest rates with less features than a traditional loan
$ usually requires lender's mortgage insurance, adding to the cost of a loan
But wait there's more.............
No-doc loans
An extension to lo-doc loans are loans called no-doc. No-doc meaning no documentation.
What they mean by no-doc is that you don't have to supply your assets and liabilities position and don't have to verify your income.
These loans are essentially what we call asset lends. That means the lender lends against the value of the asset which is what they normally do but in the case of no-doc loans they usually limit the amount you can borrow to an LVR of 65% to 70%.
The reason why they lend a lower amount is because if the borrower defaults on the loan and the lender has to sell the asset, it takes time. During that time the interest builds up. The lender wants to recover the capitalised loan amount from the sale proceeds.
In other words there is some “fat†in terms of equity in the property that can be used to soap up the building interest.
Depending on your circumstances no-doc loans can be a very hassle-free way of obtaining funds by using the built up equity you have in your property.
