For many Australians, self-employment can allow flexibility and more freedom. However, a drawback for some self-employed individuals is difficulty in obtaining home loans.
With many lenders tightening their credit policies, borrowing can become tricky, especially for the self-employed.
For the self-employed, meeting the standard home loan lending criteria can be difficult, the process can take longer and larger deposits are required due to the increased risk of cash-flow fluctuation.
Showing proof of income for ‘Prime’ lenders
Up-to-date tax returns and financial statements are generally needed to confirm and verify income.
Prime Lenders, with the leading interest rates, generally demand two (2) years of the following:
- Trading statements for the business (across 2 most recent years)
- Personal tax returns of the owner (across 2 most recent years)
- and sometimes, BAS statements to support any additional leeway such as a loss in one year but an improvement in the most recent periods.
- GST and ABN registration for 2 plus years is also sought.
- Anything deviating from the above will usually require explanation and a supporting document if one is available.
Bringing you choice
There are many options in the lending market place for self-employed borrowers, including those that have limited trading history and who may be in their first years of self-employment.
These are often called lo-doc or low-doc home loans. There are used when you have a low amount of documentation available to use for income verification by the lender.
‘Low Doc’ home loan options
The low-doc home loan option is a more financing solution for the self-employed who have income and assets but may not have the usual paperwork and standard income verification documents necessary to apply for a loan.
They generally do not require traditional proof of income. Lender dependant, borrowers will normally need to provide confirmation of their self-employment status – such as a registered ABN held for over two years.
Low Doc loans can usually be evidenced on:
- BAS statements (6-12 months of BAS)
- Accountants Declarations, showing that the business revenue is there and ‘signed off’ on by the accountant
- 1 most recent year of financial statements or tax returns
- Bank Statements showing business income
- Generally, most lenders will want a combination of 2 of the above, and they will tend to not want to lender more than 80% of the security.
Are there lending limits or restrictions?
However, there are often limits on the borrowing total, with lenders only allowing you to borrow up to 80 per cent (80% LVR) of the total purchase price before the additional requirement of lender’s mortgage insurance.
Traditionally, the interest rate offered is higher than for the standard variable rate, but recently this has been changing to bring these to the same level. Also, you can often transfer to a better rate once you are able to demonstrate your income.
Not every lender will accept home loans from low-doc borrowers and some will require more documentation, but this shouldn’t deter self-employed borrowers from seeking home loan approval.
To help improve your chances of low-doc loan approval, call us on 1300733942 to discuss your situation with a mortgage broker who can quickly find you a lender that will accept your loan, or fill in our enquiry form.