Low doc and non-conforming loans
If you work for yourself or you don’t quite fit normal borrowing criteria, never fear! There can still be options for buying a place of your own.
We don’t live in a cookie cutter world, and if you’re self-employed or your circumstances are a bit out of the ordinary, it can still be possible to buy a home using a low doc or non-forming loan.
Here’s what’s involved.
Low doc loans
Low doc loans are pitched at self-employed people, who may not be able to stump up the traditional proof of income like regular payslips that many lenders require.
If you have all your financial records up to date, applying for a home loan when you’re self-employed doesn’t have to be considerably different from any other home loan application. Lenders will often want to see your last one to two years of personal and business tax returns and income tax assessments. That’s because your declared taxable income, not gross turnover, will be used to determine your borrowing capacity.
However, you may not have time to complete your latest tax return or other records, and that’s where a low doc loan can help. It can be a way of buying a home even when you don’t have up to date records available to show a lender.
You will still need to provide some paperwork. The requirements differ between lenders but as a general rule, you’ll be asked to provide things like:
- Your Australian Business Number (ABN),
- Evidence you’ve been self-employed in the same industry for at least 12 months,
- Your latest Business Activity Statements (BAS) verified by the Australian Tax Office (ATO), and
- Several months’ worth of bank account statements.
The downsides of low doc loans
Without traditional proof of income, a low doc loan can come with some drawbacks. Again this varies widely, but you may have to provide a larger deposit. Be prepared to shop around too – lenders can see these loans as higher risk, and the interest rates and fees may be higher than for regular mortgages.
Non-conforming home loans
The term “non-conforming” simply means home loans that are suitable for people who don’t fit a lender’s standard criteria.
This can include people who:
- Have a tarnished credit record,
- A record of bankruptcy,
- Are new migrants to Australia with no local credit record.
The interest rate you pay on a non-conforming loan is often determined by your circumstances and past credit record. Bottom line though, you could be asked to pay a much higher rate than for a normal mortgage.
On the plus side, if you can keep up the loan repayments and build some equity in your home, you may be eligible for a lower rate with the same lender, or be able to refinance to a cheaper home loan further down the track.
The upshot is that even if lenders see you as a round peg in a square hole, it can still be possible to secure a loan for your first home! Chatting to a broker can help you understand what your options are.
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- Chapter One : Getting started
- Chapter Two : Your Dream Home
- Chapter Three : Money Matters
- Chapter Four : Ways to Purchase
- Chapter Five : Understanding Interest Rates
- Chapter Six : Understanding Home Loans
- Chapter Seven : Lending Sources
- Chapter Eight : Getting Your loan
- Chapter Nine : Choosing a Home
- Chapter Ten : Steps to Settlement