Whether you are self-employed or have a relatively non-traditional income stream, obtaining a home loan can require a different sort of loan.
Self-employed loans and, in more recent times, Low Doc Loans are ways in which even the unconventionally employed can still access the funds they need to buy a home.
Being Self-Employed and Getting a Home Loan
In brief, being self-employed means that you are not employed by someone else–such as a business or company. You might be a sole trader, such as a plumber, or a contractor working on a specific project for a client. You can even be operating in a partnership.
Ultimately, if you are working for yourself and are not paid a wage, you are likely defined as self-employed.
Self-Employment Loans
Traditional home loan applications require applicants to provide proof of their income stability. This provides the lender with the confidence required that the applicant will be able to pay back the loan.
Paperwork to provide this can include tax returns showing the annual salaries of applicants, financial statements such as payslips, and other verification documents from an employer. For those self-employed individuals, income may fluctuate or be less consistent, and there are no payslips provided by a third party. This can make proving one’s financial health to a bank or lending facility trickier.
And it’s why Low Doc Loans may just be the financial solution you need.
A Guide to Low Doc Loans
What are Low Doc Loans?
Low Document Loans are intentionally self-explanatory: It’s a loan specifically designed to facilitate the need for less extensive documentation compared to more traditional mortgages.
This flexibility allows people who are self-employed to provide adequate income verification through alternate methods, such as bank statements and/or a self-declaration of income.
In most cases, the main documentation required for a Low Doc Loan include:
- An Australian Business Number (ABN)
- Business Activity Statements (BAS)
- A letter from your accountant verifying your income
- Bank statements for your business
- Interim financial statements
Who can access Low Doc Loans?
There are actually a variety of workers who can and do benefit from these types of mortgages.
- Self-employed – Of course, individuals who are sole traders, freelancers, or contractors will all benefit from Low Doc Loans. If one can demonstrate a strong financial track record, notwithstanding periods of income fluctuations, even the self-employed can secure a loan.
- Business Owners – Business owners and owners of new businesses in particular may not have the required two years of consistent tax returns to provide as proof of income. A Low Doc Loan can assist in securing property finance during the initial or ongoing business stabilisation period.
- Casual Workers – Casual workers, especially those with multiple casual jobs, may generate a sizable income. While traditional mortgage documentation requirements may not allow casual workers to adequately prove their income stability, a Low Doc Loan can provide the necessary solution.
- Returning to Work – Employees returning to the workforce after a break, such as for parental leave, may have a gap in their employment history which does not align with the verification requirements of a traditional loan. This a Low Doc Loan can provide an alternative way of demonstrating current ability to repay a loan.
Benefits of a Low Doc Loan
Low Doc Loans offer a number of benefits. For one, it’s a more simplified and streamlined application process. With less documentation verification required, it is often easier and quicker for applicants to provide the necessary paperwork.
Secondly, it provides greater access to home ownership for a wider variety of people. Traditional mortgages are well suited for employed individuals, but for those with less conventional income streams, Low Doc Loans can be a necessary alternative pathway.
Lastly, it provides critical flexibility in income verification. As outlined above, applicants with income streams that are less conventional may find the strict requirements of traditional loans difficult to navigate successfully compared to Low Doc Loans.
Drawbacks of a Low Doc Loan
There are some considerations to take into account as well, however. Low Doc Loans do typically incur higher interest rates. Though it is important to note that this will depend largely on the lender and the type of supporting documentation or verification of income that an applicant can provide. The Loan Monster team is able to obtain decent rates. Some other additional costs can include the requirement for a larger deposit.
How to apply for a Low Doc Loan?
The best way to begin exploring how a Low Doc Loan could help you is to get in touch with the Loan Monster team today. We’re experts in helping the self-employed, with or without traditional financial documentation, access the loans they need to fund the home they deserve.
