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.
‘Low-doc’ home loan option
The low-doc home loan option is a more flexible financing solution for the selfemployed 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.
Up-to-date tax returns and financial statements are generally needed to confirm and verify income. Lenders may even require business activity statements (BAS), trading statements or a letter from your accountant.
However, there are often limits on the borrowing total, with lenders only allowing you to borrow up to 80 per cent 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, you may want to consider talking to a mortgage broker about your options.