Homeownership is a dream for many people. Yet, some documentation and requirements for home loans can often feel a deterrent for self-employed people. With the assistance of our expert brokers, you will make your new home a reality much faster with a low doc home loan.
What is a Low Doc Home Loan?
Low documentation home loans, often shortened to low doc loans, acquired their names because of their lower documentation requirements, especially when compared to traditional loans. Oftentimes, eligibility for these home loans may also be acquired through the provision of alternative documents, which is why they are also referred to as alt-doc loans.
These loans are often available to self-employed individuals, whether they are freelancers or business owners. In both cases, access to payslips, PAYG payment summaries, and group certificates may not always be possible. These are all part of the standard documentation required for a mortgage, which is why these low doc home loans were created to fix the issue of limited availability of documentation for non-traditional borrowers looking to purchase a property. Before the emergence of low doc home loans, access to mortgages was nearly impossible for many self-employed Australians who, while having the income to support a mortgage, did not have the necessary documentation to prove their suitability.
Low doc home loans often rely on self-verification of income and in place of payslips, may require supporting letters from an accountant as well as your recent bank statements. Provision of your Business Activity Statements (BAS) for previous years may also be required.
Who are low doc home loans for?
Low doc home loans are for people who have both the income and assets to purchase a home but do not have the traditional financial documents that are required for a mortgage. Usually, these individuals are either
Low doc home loans are created to allow access to the housing market to a more diverse number of individuals by supporting those whose earnings cannot be proven using the traditional methods.
To be eligible for a low doc home loan, you will normally need to have a fairly good credit history as lenders will want proof of your ability to afford the repayment plan for your loan. Your eligibility will be improved by good credit history, and the lender will want to know that you can afford repayments. However, do not be discouraged if you think you have bad credit as this is where a mortgage broker comes in. Speak to your mortgage broker on how you should approach your home loan application, given your scenario. You may also need the assistance of a credit repair specialist to find out if you can still improve your credit score.
While there are many reasons to use a low doc home loan, the main one is that you cannot prove your actual income in traditional ways. This could be because
If you’re self-employed or a sole trader, you will need to keep your financial records as up-to-date as possible. Your home loan application will not be too different from a traditional one if you do. Typically, you will want to be able to show your last two years of personal and business tax returns and income tax assessments to get a loan. These will be used to determine the amount that you can borrow.
If your documentation is not up-to-date, some lenders will be willing to allow you to self-certify your income. Oftentimes, your accountant will also need to provide certification of your income to get approved for a loan in this way.
What do I need to apply?
These documents will help the lender determine whether you are a reliable borrower and if you have the income required to purchase a home. The most commonly required documents include
What is an Income Declaration Form?
An Income Declaration Form is an alternative method for lenders to verify the income of self-employed individuals. Typically, each lender will have their own Income Declaration Form for potential borrowers to fill out. On this form, you will need to add your name, business name, business’ ABN, and the amount you are looking to borrow. An indication of the repayment plan will also be noted on this form. Apart from this form, some lenders will ask that you verify your assets and liabilities through further documentation.
If you are trying to get approved for a home loan, especially if the loan you are interested in is a low doc or alt doc home loan, then it is advisable that you contact an experienced mortgage broker to assist you with all of the documentation that you need. In part, this is because you want your application to be as solid as possible to avoid any chance of it getting rejected. At Lendstreet, our expert mortgage brokers have vast experience in helping you find the perfect loan for your needs and to help you fill out the application. For more information, you can contact us by filling out our form.