Understanding low doc loans for the self-employed

There’s a lot of appeal to being self-employed. Sole traders or people who own their own small business enjoy freedom, flexibility and the chance to adapt their work to best suit their interests and skills. However, there are a couple of drawbacks to being self-employed. One of the biggest is the difficulty these workers face when it comes to securing a home loan.

Traditionally, to secure a home loan you’d need to provide certain types of documentation that prove your ability to meet repayments. These documents include everything from assets and liabilities to proof of long-term income, which can be difficult for self-employed Aussies to provide. Of course, this doesn’t mean they shouldn’t be able to secure a mortgage, which is where low doc home loans can provide a solution.

What is a low doc home loan?

A low doc home loan looks at different types of information to determine whether a borrower will be able to service the loan. Contrary to what a lot of people think, a low doc loan doesn’t mean no documentation is required. It can often be harder to secure one of these loans, especially in recent years as lenders have started demanding more equity and cleaner credit histories.

Alternative documents are used to establish a borrower’s ability to service their loan, and in general, these include:

• a Borrower’s Income Declaration showing typical income;
• your business name and registration details;
• your Australian Business Number (ABN);
• your Business Activity Statements (BAS) for the last year;
• GST Registration; and
• minimum 6 months’ of Trading Statements.

Other aspects of a low doc home loan to consider are that you’ll be typically able to borrow up to 80 per cent of a property’s value. For loans of more than 60 per cent of a property’s value, lenders’ mortgage insurance will often be required.

The costs of a low doc home loan

Because of the additional risk low doc home loans present to lenders, they often come with additional fees and higher costs. These extra costs can be a leap, but could be well worth it for those with steady, profitable self-employment who want to secure a loan without giving up their freedom and flexibility.

The process of securing a low doc home loan can be complex, so for assistance, advice and support, talk to your Mortgage Choice broker today.