According to a recent report by The New Daily, property prices have increased by almost 17 per cent in the past 12 months, making it even more challenging for first home buyers to realise their dream of home ownership. In this competitive environment, casual workers and freelancers are the worst affected as they must meet more stringent lending criteria to qualify for a home loan.
Low doc loans to the rescue
If you’re self-employed, a contractual worker, or without a steady source of income, a low-doc loan could be your best shot at your dream home.
Low-doc loans are loans that require less paperwork to establish your credit history and repayment capacity. A boon for the self-employed, qualifying for a low-doc loan requires minimal documentation in the form of self-certified income statements or business activity statements (BAS) instead of regular payslips.
However, the benefit may come at the cost of higher interest rates and and increased loan-to-value ratio in some cases, meaning you’ll need to provide at least 20%of the property’s value as a deposit to qualify for a low doc home loan.
That’s because lenders take on a higher risk when approving you for a home loan with less conditions. To reduce the level of risk, many lenders cap the borrowing to 80 per cent of the property price or even 60 per cent if you don’t have valid Business Activity Statements (BAS) to submit with your documentation. This also means that these loans may not be covered by Lenders mortgage insurance (LMI), and you’ll probably need to save more to put up the required deposit on your home. You can always speak with a mortgage broker to discuss your unique situation to apply with a lender more likely to approve your home loan application.
Who can apply for a low doc home loan?
Low doc home loans are designed for self-employed borrowers who can afford the deposit and repayments on a home loan but don’t have the standard documentation to prove their financial situation. This may include self-employed borrowers, small business owners, freelancers, sole traders and contract workers.
What documents do I need to apply for a low doc home loan?
Even though you don’t need to submit any payslips while applying for a low doc home loan, you’ll generally require the following documents to qualify:
- Self-verification using an income declaration form
- Your ABN and/or registered business name
- Recent business activity statements (BAS)
- Bank statements
- A letter from an accountant clarifying your financial position
Tips to qualify for a home loan as a self-employed borrower
Keeping in mind the tougher procedures for approval being employed by lenders, these tips can increase your chances of getting a loan:
- Try to build up a deposit of at least 10% of the purchase price
- Ensure that you lodge your BAS
- 3. If applicable, register your business for GST
It’s also important to compare deals from several lenders to try and secure a more competitive rate on your mortgage. You might find that low doc loans charge you a higher interest rate than traditional home loans, but they do give you a chance at getting your foot into the property market without regular payslips to prove consistent income. You also don’t need to be locked into a higher rate forever. If your situation changes and you switch to a conventional job in future, you can always refinance to a regular home loan with a more competitive interest rate.
Hashching’s verified partner brokers can give you multiple options on low-doc home loans. They can also negotiate on your behalf and save you further at no cost to you. So, if you’re looking for a new home loan or refinancing options for your existing loan, consider asking an expert and let our verified brokers guide you.