Almost 20 per cent of working-age Australians are self-employed, which can bring flexibility and freedom but also challenges when it comes to obtaining home finance
Many banks have tightened their credit policies when it comes to the self-employed, but with the right help there are still plenty of options available.
Self-employed borrowers often find meeting the lending criteria for a standard home loan difficult. Cash flow may well fluctuate more significantly than for salaried borrowers, while a self-employed person may find it difficult to provide the necessary documentation, such as regular payslips.
Self-employed borrowers may also face longer minimum waiting periods and be required to put down larger deposits than their employed counterparts.
In such cases, one option to consider is a so-called ‘low doc’ loan. These can be great if you can’t provide up-to-date tax returns or financial statements since you will have several options for confirming your income.
Requirements vary depending on the lender but, generally, self-employed borrowers will need both to have been in business and to have held an ABN for at least two years.
It’s also worth noting that a low doc loan application will still require some form of income statement, usually a signed declaration.
Some lenders may even require your Business Activity Statements (BASs) as further evidence of income, while others may ask for trading statements or a letter from your accountant.
A low doc home loan is usually processed more quickly than a normal loan since there is less paperwork involved.
There are, of course, limitations. Most lenders will only allow you to borrow up to 80 per cent of the total purchase price of your property, meaning you will need a larger deposit than other borrowers who may be eligible for a 90 to 95 per cent loan.
You may also be required to pay additional lender’s mortgage insurance, even if you can put down a 20 per cent deposit.
Low doc loans usually have higher interest rates due to the extra risk lenders associate with self-employed borrowers. The good news, however, is that you can often transfer to a better rate once you can supply the usual documents needed to demonstrate income.
Your self-employed status does not have to impact negatively your borrowing potential, although the amount of information you need and can supply will ultimately decide which products are available to you.
We can work with you to locate the lender and product that will best suit your situation and repayment potential.