The requirements you will need to supply when applying for a home loan can vary between lenders. However, here is a guideline of some common requirements you should have ready when applying for a home loan are the following:
The above requirements state that in order to get a home loan when self employed you will need to ensure your business is operating for at least 2 years in order to provide the correct documentation.
Self employed home loans have this requirement due to the income structure of being self employed not being seen as financially secure as an individual with a PAYG employment. Therefore lenders prefer to receive at least 2 years of your business’ performance to get an understanding of the seasonal changes that occur and provide additional certainty in your income stream.
However, If you are self employed for under 2 years, there are some solutions available to you to get a home loan. If you do not have 2 full years of experience operating your business, lenders may require you to at least work in your industry for longer than two years and provide old payslips and references from former employers. This can be used to identify your work and income history prior to starting your own business.
A low documentation (low doc) home loan is a type of loan that is suited for self employed borrowers who can’t supply conventional proof of income required for typical home loans.
It is important to note that a low doc loan is different from a no doc home loan. A no doc home loan involved obtaining a home loan without any proof of income. A no doc home loan is no longer available for all borrowers due to the features of this loan type not meeting the National Consumer Credit Protection Act (2009) requirements.
A low doc loan is beneficial to the borrower as it involves a simplified income declaration form and involves using alternatives to tax returns as income evidence. It is important to note that this loan type does not involve providing less evidence of income, as it’s about providing alternative sources to prove your income.
Whilst a low doc loan is a useful tool for self employed borrowers to apply for a home loan, the increased risk perceived by the lender may result in a higher-than-average interest rate and more limitations in terms of the maximum loan to value ratio (LVR).
Find out more on the pros and cons of a low doc loan here to determine if it’s the right loan for you.
Not all lenders will offer a low doc loan, so before applying it's worth sitting down with an experienced mortgage broker to work out your net income and the amount of loan you can realistically afford to service on a regular basis.
