Borrowers who are self-employed frequently face the challenge of being unable to provide payslips and tax returns to support their loan applications. This, however, does not have to prevent you from purchasing your dream home.
For applicants who are self-employed but lack the standard forms of job verification like payslips, several lenders provide low-documentation (lo-doc) loans. This means that to prove your ability to repay a loan, you utilize bank statements, accountant declarations, and financial records rather than the conventional evidence.
Of course, you must still show that you can repay the loan and that your income exceeds your expenses, just like with any mortgage application. To get this properly, it takes more than just handing a lender a few hastily written estimates on the back of a bib. It takes a serious six to twelve months of planning. Here are some guidelines to help:
Pay down credit cards and personal loans, and make sure to lower credit limits, because lenders consider the total credit available to you as a potential debt level, not just the amount you owe.
Speak with a financial advisor.
A broker can explain how the structure of your company and your taxable income will affect your ability to borrow. Finance brokers also have access to specialist lenders who, unlike bank lenders, assess applications on a case-by-case basis and tailor their products to self-employed borrowers and contractors.
Prepare your taxes
Make sure you file your taxes on time and pay your tax assessments on time.
Saving a deposit is obviously important, as is demonstrating your ability to live within your means and save. This is critical for serviceability; you should be able to demonstrate at least a six-month history of high savings and low expenses.
Low-documentation loans differ from regular loans in a few respects, including the application process. Lenders make up for the slightly higher risk they assume when lending to self-employed borrowers or contractors by levying more loan-to-value ratio (LVR) and insurance requirements.
The interest rate on a low-documentation loan will normally be one to two percentage points higher than on a loan with complete paperwork. Most lenders will also demand an LVR of no more than 80%, meaning that they would never lend more than 80% of the assessed value of the property.
Pointer Finance is your smart guide for everything to do with residential, self-employed, and SMSF loans. We’re experts in personal lending so you don’t have to be. We’ll keep an eye on the future while finding you competitive, flexible loan options with a speedy turnaround, so you’re not kept waiting.