Self Employed Home Loans: How to Get the Best Mortgage If You Are Self Employed

self employed home loan

LET A MORTGAGE BROKER TAKE CARE OF YOUR HOME LOAN SO YOU CAN RELAX!

    • Purchase or refinance your owner occupier home
    • Purchase or refinance your investment loan
    • Business cash flow requirements
    • Home renovations
    • Construction loan
    • New vehicle
    • Any other worthwhile purpose

Low doc home loans (aka lo doc loans) are often sold to self-employed people as the best option for them to get a home loan. However, there are other home loan options for self-employed people that could be a better option.

Low doc home loans are often promoted by some lenders because:

 

    • they are cheaper for the lender to process; and
    • they incur a higher interest rate (to compensate for the unknown and potentially higher risk from lending to someone that the lender knows less about their ability to repay the loan).

Some bank sales staff and brokers promote low doc home loans because:

 

    • they are easier for if they don’t understand financial statements; and
    • they are quicker to submit than full doc loans for self-employed people (some sales staff and some brokers are lazy).

A low doc home loan can be the best option when you are unable to supply the required paperwork to demonstrate your income to the lender. In this case the lender will not accept a full doc application as you don’t meet the requirements.

 

Other scenarios can be where your business financials not reflecting the full story of your income or your business shows fluctuating annual income.

 

With a low doc loan you can declare what your income is by completing an income declaration form. This may help you to be able to borrow at a time of the financial year where you haven’t completed all your financial statements. Low doc loans can also be a good option for those that have only been self-employed for a short time.

PAYG employee’s income is easier to assess than self-employed people’s income. PAYG employees’ incomes are generally based on a set salary amount, with commissions, overtime, and allowances. This can be demonstrated by payslips.

 

Self-employed people have more complicated financial situations. The lender will assess their income from profit and loss statements. Often the documentation can be up to 2 years old at the time of the loan application. Furthermore, the profitability of the business could have changed from the time of the documented income.

    • Have up to date financial statements for the last two years including income tax returns and notice of assessments.
    • Use a good mortgage broker who understands self-employed home loans and not just the low doc variety!
    • Use the right lender. Bank policies vary, when assessing your income some banks will use the average of the last two years, other the latest year and some the lower of the two years. This can impact your borrowing power.
    • Maximize your add backs. When your accountant submits your tax return they will try to make your taxable income as low as possible so that you avoid tax. When you are submitting your loan application you want to maximize income and your ability to repay the loan. How does this work? Some lender allows certain things to be added back into your income for assessing your loan. For example your: depreciation, interest expense that is being refinanced or no longer exists, car allowance, excess superannuation contributions, non-recurring expenses, and non-cash expenses.
    • If you are borrowing for business purposes you may be able to use equity in residential property you own to borrow at home loan interest rates (instead of more expensive business interest rates).
    • Sub-contractors and contractors can sometimes be considered as employees by some lenders.
    • Think about your future needs when you are setting up your home loan. Will extra flexibility help you? Think about your future cash flow needs? Different features on a home loan like offset accounts or interest-only repayments may give you flexibility and extra available cash flow.
    • Depending on the loan purpose interest may be tax-deductible. Structure your loan correctly so that you can claim these expenses.

Cons 

 

    • Interest rates can be slightly higher than full doc home loans.
    • The proportion of the property value that you are able to borrow (LVR) is generally limited to a maximum of 80% of the property value.

 

Pros

 

    • Because there is minimal income documentation required, the approval process is easier and therefore usually quicker!
    • While interest rates can be higher, you can borrow before you have the documentation for a full doc loan and once you have documentation for a full doc loan you can transfer to a lower interest rate.

Are you self employed and in need of help getting the right home loan?

Low doc home loans

As a self-employed person, where you are unable to qualify for a full doc home loan or your income documentation does not reflect your income it may be better to apply for a low doc home loan. Find out more about low doc home loans here:

Low doc business loans

As a business owner or self-employed person, it can sometimes be difficult to get the required documentation to prove your business income? Find out about low doc business loans for when you don’t have the required income documentation for a full doc business loan.

Oak Laurel – Home loans made easy!

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