Self-employed borrowers often come up against the challenge of not being able to present a raft of pay-slips and tax returns to back up their loan applications, but this need not stop you buying your dream home.
Many lenders offer low-documentation (lo-doc) loans for self-employed borrowers who don’t have traditional payslips and employment records. This means that, rather than the usual documentation you prove your ability to service a loan using bank statements, declarations from your accountant and financial records.
Of course, as with any mortgage application, you must still prove that your income outstrips your spending and you can service the loan. Getting this right is more than presenting a lender with a few quick sums on the back of a napkin – it takes a solid six to 12 months of preparation.
Here are some tips to help:
Low-doc loans Vs Standard
Low-documentation loans do differ from standard loans in a few ways, apart from the application process. Lenders offset the extra risk they are taking by lending to a self-employed borrower or contractor by charging slightly higher interest rates and placing some extra rules on loan-to-value ratios (LVR) and insurance requirements.
Generally, you can expect an interest rate for a low-documentation loan to be one to two percentage points higher than for a full-documentation loan.
Most lenders will also insist on an LVR of no more than 80% – meaning that under no circumstances will they lend more than 80% of the property value, as assessed by the lender.
In cases where the loan amount is for more than 60% of the property’s value, some lenders also require self-employed borrowers to pay for lenders mortgage insurance.
Don't give up on your dream of buying property because your bank declined you. Speak with a broker as they have access to hundreds of home loan options and with their expertise and knowledge of the market they might just get you over the line.
We offer an Australia-wide service and specialise in the small business sector. If you need assistance with obtaining finance for a property please contact us - the Astute Ability Finance Group on 1300 306 694 or send us an email.