If you’re a self-employed small business owner and don’t have an easy access to the financial statements and tax returns usually required when applying for a home loan, Low Documentation (Low Doc) Home Loans are just the thing for you. With their help, the dream of owning a home can easily become reality.
But what are Low Doc Home Loans actually?
First off, let’s start with some history. Until these loans came along, home ownership for the self-employed was not easily achievable. A person who works for her or himself doesn’t have pay slips records nor a stable income and it’s possible that their business activity statement doesn’t look as solid as the lender would want to.
However, lenders saw an opportunity and thought about the necessities of these people as well, so Low-Doc lending took off in the late 90s in Australia. It was introduced by non-bank lenders, most of them mortgage brokers that opened up a viable way for self-employed people to buy a house. However, because of their nature, Low Doc Home Loans often force borrowers to pay bigger deposit and higher interest rate.
During the last few years the interest for Low Doc Home Loans grew significantly, so most of the banks have started joining the mortgage brokers in offering self-employed people help to buy property on their own.
It’s important to know that a Low Doc Home Loan is just that – a loan that requires less documentation. You’ll definitely need to bring some documentation that will state your regular income and assets and a few other documents, but the most important thing is to fulfill the requirements for this type of loan. These requirements include: full property valuations, no second mortgage on the property, a clean credit history, being self-employed for at least 1 or 2 years and asking for a maximum borrowing of 80% of the property’s purchase price.
The Low Doc Home Loans are a win-win situation for borrowers and lenders: lenders can expand their product offering and customer base and for the borrower it can mean the difference between owning a property and not.
Before you decide to ask for a Low Doc Home Loan, make sure you go through all of the required documentation with a professional, normally a financial adviser or a lawyer, because it’s always better to figure out your sums before jumping in casually. Depending on the lender’s policy, most of them will require a minimum of 2 documents, some of which usually include: your registered business name, your Australian Business Number (ABN), your Business Activity Statements (BAS) for the last twelve months and your signed Income Declaration stating your monthly income. The most important thing of it all is to stay confident and prepare all the needed documents in advance.