The self-employed borrower is often faced with difficulty in proving their assessable income to lenders. They can’t simply present a payslip to prove their capacity to repay. This hurdle becomes even higher when a borrower has not been in business for two years and hasn’t got enough financial statements ready to satisfy the lender. These hurdles are annoying but not insurmountable.
Low documentation loans are offered by many lenders to help creditworthy self-employed borrowers with eligibility. Low documentation loans change the documentation requirements to such items as the provision of bank statements, financial records, and affirmations by accountants or tax agents.
The key with low documentation loans is to prove your ability to service the borrowing. This isn’t a simple matter of presenting the lender with a rough budget and will take some considerable time in preparing your case. It could be as long as twelve months before you have everything in place. Here are some helpful hints to get your low doc application presentable.
- Pay down any existing debts and be particularly vigilant on credit card debt. Reduce credit limits wherever possible as lenders assess total debt exposure as opposed to what is owing at the time of application.
- Consult a finance broker to gain an understanding of how your business structure and your overall taxable income affect your borrowing capacity.
- Keep your tax returns up to date and ensure that all tax payments are made on due dates. ATO debt is a potential red flag to lenders.
- Develop a savings record. Savings demonstrate an ability to live well within your means and give a clear indication of what you can comfortably afford to repay.
- Choose an accredited finance broker to assist you with your loan application. Finance brokers are able to access a network of specialist business lenders who are able to assess applications on an individual level and structure loan products accordingly
Aside from accessibility requirements, loan documentation loans tend to have a few differences compared to standard housing loans. Generally, you will find that low doc loans have an interest rate pegged a little higher than the standard variable rate. This is because this form of lending is weighted higher for risk. Similarly, loan institutions are pretty rigid on LVR (loan valuation ratios). Low doc loans are rarely if ever, approved with an LVR exceeding 80%. Some lenders insist on borrowers taking mortgage insurance for loans with an LVR over 60%
If you would like assistance with a low documentation loan or would simply like to explore the possibilities of obtaining housing finance, please give the team at Australian Finance Hub a call today.