Being self-employed has several benefits, but it also comes with a unique set of challenges. For example, you may find it more challenging to qualify for a home loan if you are self-employed than if you were working as a salaried employee. That’s because self-employed borrowers cannot provide the same kind of paperwork as salaried employees to demonstrate the stability or the level of their income. However, you don’t have to think you are locked out of the property market forever because you cannot provide a lender with payslips to qualify for a traditional home loan. Instead, you can consider applying for a low-doc home loan – a specialist mortgage product designed for self-employed individuals like freelancers, contractual workers and small business owners.
What is a low-doc home loan?
A low-doc home loan, also known as an alt-doc loan, is so called because it requires low documentation compared to a traditional home loan.
For self-employed borrowers, it can be challenging to get access to payslips, group certificates and PAYG summaries, which are needed to apply for a conventional home loan. However, low-doc home loans provide more flexibility in terms of the documentation required to support your mortgage application. For example, instead of providing payslips to prove your income, you can provide alternative paperwork to apply for these loans, such as an income declaration signed by you.
What documents do I need to provide to qualify for a low-doc home loan?
Even though each lender may require a slightly different set of documents to assess your eligibility for a low-doc loan but you’ll generally need the following to support your mortgage application:
- A registered business name
- Your Australian Business Number (ABN) registration
- Evidence of GST registration
- A signed Income Declaration stating your usual income
- Copies of your personal tax returns for the past two years
- Business activity statements (BAS) for the past two years
- Your business profit and loss statements
- Personal and business bank statements for the last three months
- An accountant’s letter verifying your financial position.
Is it easier to qualify for a low-doc home loan than a traditional full-doc mortgage?
Even though a low-doc lender may assess your serviceability using a different set of paperwork than traditional lenders, it doesn’t mean the eligibility criteria for a low-doc home loan is less thorough. Similar to an application for a conventional full-doc home loan, the lender will carry out all reasonable checks to ensure the loan meets your requirement and the debt won’t be onerous for you to repay, given your present income level.
Generally, a lender will want to know the following before approving your application for a low-doc home loan:
- Do you earn enough that you’ll be able to service the loan by making regular repayments? A lender may ask for your profit and loss statement and an accountant’s letter verifying your financial position to ascertain this.
- Do you have a deposit covering at least 20% of the property’s purchase price as well as the closing costs?
Lenders generally find it riskier to lend to self-employed borrowers than someone earning a stable income through a salaried job. To cover their risk, some lenders may ask you for a higher deposit or even charge you a slightly higher interest rate than a traditional home loan.
Will it help to speak with a mortgage broker for a low-doc home loan?
While you can always apply for a low-doc home loan on your own, if you’re not sure whether or not a low-doc home loan is suitable for your financial situation, speaking to a mortgage broker can help you understand your options.
A mortgage broker is a home loan expert who can help you assess your eligibility for different mortgage products. A broker can also look at your financial situation to estimate your mortgage repayments so that you don’t end up borrowing more than what you can comfortably afford to repay.
Low-doc home loans allow you to seek finance with lesser paperwork than you require for a traditional full-doc home loan. However, the level of scrutiny is the same, which means the lending criteria could be tighter for a low-doc home loan. Mortgage brokers can come in handy by helping you assess your eligibility for a mortgage, compare home loan products and even negotiate with lenders to help you get a competitive deal. A broker can also manage the paperwork for your home loan to avoid any hiccups or delays in the approval process due to careless mistakes, like insufficient information or a document that has been missed out.
