So you work for yourself? Every year more and more Australians just like you are choosing to sack their boss and go out on their own. So how does this affect you when it comes to taking out a home loan?
Being a self employed borrower sometimes changes things when it comes to taking out a mortgage. Whilst you can certainly gain access to all the same home loans as a PAYG or salaried person, it’s become very common for self employed borrowers to look at a Lo Doc (low documentation) home loan option. Why? Because let’s face it, being self employed often means complicated financials that may not always tell the full story.
Lo doc Home Loans (Low documentation)
Generally lo doc home loans are available for self-employed borrowers who are unable to provide full financial statements or taxation returns to verify their current income. Effectively, you can declare what your income is by completing an income declaration form. This offers flexibility if you’re self employed, especially if you’re borrowing money at a time of the financial year when you haven’t completed all your financial statements.
A lo doc loan could be suitable in the following cases:
- Self employed for at least 2 years
- Financials not yet done
- Financials not reflecting the full story
- Short term self employed
- A business showing fluctuating annual income
Pros and Cons of a Lo doc home loan
P With the minimal income documentation required, one of the perks of taking a Lo Doc loan is that the approval process is easier and therefore usually quicker!
C Interest rates can be slightly higher than traditional loans.
P Whilst interest rates can be higher, you usually have the option to transfer over to a traditional loan and therefore a lower interest rate once you can provide traditional forms of income again.
C There can be limits on the amount you can borrow for example you generally cannot borrow more than 80% of the property value.
P Most Lo Doc loans have all the features of standard variable and fixed-rate home loans. This means options like a 100% mortgage offset account to enjoy interest saving benefits.
Why is my interest rate traditionally higher if I take a lo doc home loan?
Let’s face it, all decision making in life is about looking at the risk. If lenders are prepared to take a higher risk by lending you money without you providing your up-to-date financials, naturally they can charge a little extra depending on your situation.
Lo doc Home Loan Purpose
- Investment loan
- Purchase owner occupier home
- Business cash flow
- Home improvements
- New vehicle
- Construction home loan
- Any other worthwhile purpose
Let’s take a look at a lo doc customer example:
Jeff the electrician
Jeff had been working as an electrician for over 6 years. He decided he no longer wanted to work for a wage and was confident he could make more money and enjoy more freedom and flexibility by going out on his own, so about 1 year ago Jeff became self employed and business is booming! Jeff and his wife decide, now that they are earning more money, it’s time to move into a bigger home. Jeff and Megan head down to their local bank only to find they can’t get a traditional home loan because their business hasn’t been operating for long enough. They are so disappointed because they have already found and fallen in love with their dream home and don’t want to wait. This is where a lo doc loan is perfect and gives Jeff and Megan the ability to buy their new home straight away.
Pete the florist
Pete has been operating his florist business for over 5 years now. Recently he decided it was time to buy an investment property and start building a nest egg for his retirement. It’s now October and the bank wants to see all of Pete’s trading figures for the previous financial year. Most of Pete’s paperwork is still scattered between several draws in his office and he hasn’t even thought about visiting the accountant yet, let alone preparing in depth figures the bank will want to see. A lo doc loan could be the perfect solution for Pete.
Assured Home Loan Products
Assured offers a wide range of home loans suited to self employed borrowers, whether you’re looking at a traditional or Lo Doc loan.
Interest Only Home Loan
Perfect for investors, an interest only mortgage will help you maximise the cash flow on your property.
Standard Variable Rate Home loan
A Standard Variable rate mortgage is traditionally the most popular type of home loan offering plenty of useful features and flexibility. The rate goes up and down depending on the market. A variable rate home loan can be linked to an offset account, helping to reduce your overall interest.
Standard fixed Rate Home Loan
Fixed rate mortgages are also popular with investors because they offer you the security of a fixed rate (which means set repayments) for a given period. This means you have the peace of mind when it comes to budgeting, knowing that your repayments aren’t going to change on you for the term you have selected. Fixed rates can range from 6 months to 10 years.
Basic Variable Rate Home Loan
A basic variable rate mortgage is simple to understand and easy to use and is ideal for borrowers who are looking to make minimum payments and require less flexibility than a standard variable rate loan.
Line of credit
A line of credit allows you to only pay interest on the money you actually utilise. These products allow you to utilise the equity in your property. You can use these funds for any personal purpose and like a credit card, any principal repaid is available to redraw.
This type of home loan is especially attractive to investors who need ready access to funds.
Low Doc loan
A Low Doc loan (low documentation) requires a declaration and BAS statement. They usually come with a higher interest rate. Assured offers a broad range of low doc loans, which are ideally suited to self-employed people unable to provide evidence of income.
Construction Home Loan
A great option for investing in property is to build. Assured Home Loans offers a range of construction home loans for investors. Construction loans are generally interest only for the building period, but then you are able to select from a variable rate, fixed rate home loan, line of credit and so on.