What are self employed home loans and low doc home loans?
As the name would suggest, low doc home loans are a loan product offered by lenders who do not have all the required documentation for a traditional home loan application.
A regular employee has access to a complete range of documents such as pay slips, bank statements etc. to provide evidence that they can afford the monthly home loan repayments.
On the other hand, some self-employed people may not have access to a complete list of documents to prove their capacity to pay off the home loan. These type of low doc loans were specifically designed as small business owners, contractors, and freelancers who do not have access to the usual documents required for a home loan.
A major element of a self employed or low doc loan is the self-verification of income. This is done by signing a declaration outlining there earnings without the need to supply the home loan provider with supporting documentation such as tax returns, bank statements and other financial documents.
I am self employed, does a low doc home loan suit me?
If you are self employed and do not have access to the same financial information that a regular employee would have, then a low doc loan may suit you as this type of home loan is not subject to the same criteria as a standard home loan in regard to paperwork.
What documents do you need for a self employed low doc home loan?
Although you do not need to meet the criteria of more traditional home loans, you may still need to provide some documents to verify your income and satisfy other requirements. They include:
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Your Australian Business Number (ABN) or company registration certificate.
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A signed income declaration verifying your income that you can service the regular loan repayments.
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Business Activity Statements from the last six to twelve months.
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Confirm your GST status.
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Your personal and business transaction bank statements for at least 6 months.
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In the event that you are a contractor or sub contractor some banks may review the arrangement to exclude you from being an employee.
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Have at least a 20% deposit. The maximum LVR for low doc loans is 80% of the property value.
The more details you can provide the better, as lenders are always considering the bets way to verify your income.
What Are The Advantages and Disadvantages of Self Employed Home Loans?
Self-employed and low doc loan advantages
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Getting approved - A low doc loan can help you get approved and the opportunity to purchase a property, where you would not otherwise qualify for a full doc loan.
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Switching over to a full doc loan - After two years your lender will consider moving you over to a full doc loan product where you can access additional features
Self-employed and low doc loan disadvantages
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Higher interest rates- Home loan providers consider low doc loans riskier so they may charge you a higher interest rate to mitigate their risk.
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Injecting a Larger Deposit - You will require a larger deposit, generally a minimum of 20%
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Lenders mortgage insurance (LMI) - While full doc home loans may be subject to LMI for home loans with an LVR higher than 80%, some low doc loans will acquire LMI if the deposit is less than 40%.
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Reduced number of Lenders- Because of the risk related to low doc loans, not every bank or home loan provider will offer low doc loans.
How does the approval process work if i am self employed?
Just like other standard home loans, home loans for self employed people have their own set of requirements in assessing your application: they include:
Verifying Income
The home loan provider must be able to verify your income. This can be done via tax returns, BAS statements, profit and loss statements and an income declaration.
Confirming assets
The lender would like confirm what type of equity and assets you have. The home loan lender could require any rates notices for properties owned, savings statements or details of any investments you may have.
Credit History
The home loan provider will also need to verify you previous credit history through a third party such as Equifax who hold information on your repayment history and any credit accounts you may currently have. You may also need to provide credit card statements or transaction account statements.
What else do i need to consider for a self employed home loan?
There are other things you should consider when applying for a low doc home loan. They include:
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Paying a higher interest rate - Low doc loans attract a higher interest rate than a full doc loan. The lender will mitigate their risk by charging a higher interest rate.
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Injecting a larger deposit – the most that a lender can lend you is 80% of the loan to value ration of the value of the property so you will need at least a 20% deposit.
What's the Yellow Line?
Low doc home loans are a great way to purchase a property if you are self employed and do not have all the required documentation.
There are a vast range of products and banks are extremely competitive.
It is best to seek professional financial advise to ensure you obtain the most appropriate home loan product for your needs.
Yellow loans has a vast range of lenders with a range of products to achieve the best results on obtaining the best home loan deal for you. You can contact us here and we can get your future looking bright.