June 01, 2012
Self-employed? Own a small business? Thinking of buying property but concerned you don’t have all the standard financial documentation to apply for a typical home loan? You may qualify for a ‘low doc’ loan. Give me a call to discuss options on 0413 245 556 or lodge enquiry online.
When self-employed Australians or small business owners apply for a home loan or an investment loan, it’s not uncommon for some to struggle to substantiate their income. For example, take a successful self-employed person who has been in business for a short time – say, 18 months. Their business may be trading profitably, but most lenders will not consider this business owner’s trading results until they have completed a minimum of two years in business. Here is where choosing a ‘low doc’ loan may help.
A ‘low doc’ or low documentation loan allows self-employed borrowers and small business owners to obtain finance without all the financial statements or tax returns usually required. Borrowers applying for such a loan will generally need to provide their previous 12 months’ BAS statements and/or one to six months’ business transaction account statements. This type of borrower also has to sign a declaration confirming their income to the lender. This is called a ‘Declaration of Financial Position’. In addition, they must supply a statement signed by an accountant verifying their income.
Every low doc lender has very specific lending criteria for low doc loans. Often they will only lend a maximum of 80% of the property’s value. When it comes to the loans themselves, some have interest rates and loan features that are comparable to standard variable loans. However, others may have higher interest rates (around one percent higher). Once the borrower has a proven track record of on-time home loan repayments (for a period of approximately two years), the lender may revert their loan interest rate to something that is comparable with the standard variable rate.
If you are self-employed or a small business and you already have your income evidence documentation organised, a full doc loan may be more suited to you. In this case you will need to provide two most recent years’ tax returns and tax assessment notices, balance sheets and detailed profit and loss statements from the last two financial years and your accountants’ contact information. Details of external liabilities, such as leases, hire purchases, overdrafts, company loans and/or guarantees will also be required.
To speed up your property loan application, there are some other more straightforward steps you can take now to help you obtain your loan sooner.
When applying for a loan, it is advisable to organise 100 points of ID, such as your driver’s license, credit card, passport or Medicare card, birth certificate, etc. You will also need to provide details of income from other sources, if any, such as rental properties or share portfolios.
If you receive any regular income or a pension from agencies such as Centrelink you will also need to present those details.
These days, most lenders will require a deposit of at least 5% of the property purchase price plus costs, as well as evidence of genuine savings dating back three to six consecutive months.
Also be prepared to provide details of your assets (i.e. investments, savings accounts, other items, eg. jewellery, tools of trade), liabilities (personal loans, credit cards, other loans and department store cards) and any other expenses you may have, such as rent, HECS, or family repayments, to name a few.
By taking these necessary planning initiatives and simple steps, you could potentially get your property loan sooner.
For more information contact Richard Windeyer on 1800 01 LOAN or click here to "Book a Meeting"