Low document home loans
It’s not always easy getting a home loan when you have just started a business, especially if you don’t have two years’ worth of financial statements to prove your income and viability for the loan.
There is a solution, though. A ‘Low Doc Home loan’, is designed for people who want to finance their dream of buying a home and can’t do it through the traditional lending methods that some banks require.
Small business owners and self-employed people are now more prevalent in the marketplace, and financial institutions must now cater to them and their future. Self-employed and small business owners make up approximately 30% of the Australian workforce and this figure is growing. Yet for a long time, financial lending institutions haven’t caught up to this change in society.
A Low Document Loan makes it easier to borrow money, with lenders who provide them offering a, more flexible approach to buying a home, investing in a residential property or refinancing an existing home or residential investment loan
A Low Document Home Loan helps ease this burden, allowing the applicant to supply only one year of financial statements to prove their income or a Low document declaration by the customer declaring their income, supported by either last 2 BAS statements or an accountants letter signed off. Applicants are still required to demonstrate the ability to pay off a home loan, but the requirements are altered to assist with the application.
What you will need
Unlike banks, who want two years worth of tax returns and full financial statements, which is impossible to access for many people, when you apply for a Low Doc Loan, you only need supply the following:
- Proof that you have been working self-employed or as a contractor in the same industry for at least one year and Confirmation you have been registered for GST for a minimum of 12 months.
- 6 months’ worth of consecutive BAS statements, lodged with the Australian Tax Office (ATO) or
- Most recent personal and business bank statements / 6 months’ worth or
- A letter signed by your accountant to verify your income & affordability
- Declaration signed by you that you can afford the loan
- Generally, 20% Deposit for a purchase or equity in your home for a refinance
What you need to know
The interest rates on Low Document Home Loans are higher than on standard loans, but not impossible to service.
Many financial lenders who offer Low Doc Loans allow you to borrow at bank’s standard rate of lending but you’re not usually able to get any discounts from interest rates. As a result, the effect of a Low doc Home Loan is that you’ll typically be paying somewhere between 0.80% and 1.00% over and above advertised interest rates for your home loan.
Also, some lenders may require you to take out Lenders Mortgage Insurance or a Risk Fee may be payable for a low doc loan.
There are no actual time limits on Low Doc Home Loans, but many lenders will require you to stay on Low Doc products for a set period of two to three years of time unless you refinance with another lender.
This is because it takes you this time to build up your financial history and accompanying documents.
It’s important to be aware that if you leave the loan early, some lenders apply heavy exit fees but the Low Doc Home Loans are an excellent alternative tool for many newly self-employed people, seasonal, self-employed and contract workers, and full-time investors, or small business owners.