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A low doc home loan is a type of loan that may be suitable for self-employed borrowers who do not meet the normal income verification requirements.

A low doc home loan is a type of loan that may be suitable for self-employed borrowers who do not meet the normal income verification requirements.

When you first look at home loans as a self-employed person, you may be surprised at how differently you are treated from someone who earns a salary. Lenders tend to take a conservative approach with self-employed applicants.  Generally you will be asked for the two most recent tax returns and  financial statements.  The income figures in these will be used to determine how much you can afford to borrow. Without up to date tax returns or tax returns that don’t reflect your current income, you may struggle to qualify for a home loan or to borrower the amount you need.  A big frustration of self employed borrowers is that once tax returns are lodged they are reflecting your business some time ago. Even if lodged on time they can be 12 to 18 months old and a lot can happen in that time.

So when and why should you use a low doc home loan? There are a number of circumstances where a low doc home loan may be needed. Some examples include: you do not have up to date tax returns, your business may have turned around and this is not reflected in your tax returns, you have moved from PAYG to contracting or haven’t been self-employed for long enough to have two years tax returns completed. 

Low doc loans allow you to use alternative documents to be able to prove your income. BAS statements are a good measure of business trading and you are obliged to keep these up to date. Some lenders want to see a full years’ worth and others will consider your income with as little as two. Business bank statements will show your income and confirm your ongoing commitments so these can be provided substantiate your current trading position. Another alternative is an accountant’s declaration confirming your current income. Accountants have often completed interim financials and know already what the income figures are going to be. Having their confirmation can give a lender comfort that there is sufficient income to meet repayments for a loan. 

An Income Declaration is used  to declare your income for your home loan application. If you are not providing traditional two years tax returns then this is used to indicate how much your income is. It includes information like your business name, ABN, nature of the business, annual income before tax, borrowing amount and repayments. The amount you state will be compared to the other documents that you provide to ensure that it all makes sense. 

Under responsible lending laws, lenders need to satisfy themselves that the borrower is able to meet repayments for a proposed loan without causing hardship, so checking the income figure against your other documents and benchmark profitability for the industry as well as your personal asset and liability situation gives further evidence that it is affordable. 

When you are self-employed it is important to speak to a lender who understands self-employed borrowing options. If they are not skilled in this area you could end up with numerous credit enquiries as they apply unsuccessfully with multiple lenders. Having confidence that you are being looked after by someone who has thorough self-employed borrowing experience is the first place to start.

Applying for a low doc home loan may sound overwhelming, but it doesn’t have to be. With the right lender and right home loan option, the process can be simpler than you thought. At State Custodians we have skilled professionals who can explore your lending options. Apart from our own self-employed home loans, we have access to a range of lenders who have specific policies designed for self-employed borrowers. Check out our range of self-employed home loans, phone 13 72 62 or email  ask@statecustodians.com.au to have a Lending Specialist contact you.