5th May, 2023

What Self Employed Borrowers Need To Know

Home Loans

When it comes to applying for a low or alt doc home loan in Australia, it’s important to understand what lenders are looking for. While these types of loans can be a great option for those who don’t have completed self-employed tax returns or traditional income, the application process can be more rigorous than for a standard home loan. However, with the right preparation and understanding of what lenders are looking for, you can increase your chances of being approved.

Firstly, it’s important to understand what a low or alt doc home loan is. These types of loans are designed for borrowers who may not have the traditional income documentation required for a standard home loan, such as payslips or tax returns. They may be self-employed, have irregular income streams, or have a poor credit history. As a result, low doc loans typically require less documentation and have more flexible lending criteria than standard loans.

However, this flexibility does come with some additional requirements from the lender. Here are some of the key factors that Australian banks and lenders will consider when assessing your low or alt doc home loan application:

    1. Income and assets
      While low doc loans don’t require the same level of income documentation as standard loans, lenders will still want to see evidence of your income and assets. This can include bank statements, tax returns, profit and loss statements, and any other documentation that shows your financial situation. Lenders will also consider any assets you have, such as property, shares, or savings, as this can help demonstrate your ability to repay the loan.
    2. Credit history
      Your credit history will also be taken into account when applying for a low doc loan. Lenders will look at your credit report to assess your creditworthiness, including any missed or late payments, defaults, or bankruptcies. While a poor credit history won’t necessarily rule you out of a low doc loan, it may affect the interest rate you’re offered.
    3. Loan-to-value ratio (LVR)
      The loan-to-value ratio (LVR) is the amount you want to borrow compared to the value of the property you’re purchasing. For low doc loans, lenders will typically require a lower LVR than for standard loans, as this helps mitigate the risk of lending to borrowers with less traditional income documentation. Most lenders will require an LVR of no more than 80%, which means you’ll need a deposit of at least 20%.
    4. Loan purpose
      Lenders will also consider the purpose of your loan when assessing your application. While low doc loans can be used for a range of purposes, such as purchasing a home, refinancing an existing loan, or investing in property, lenders may have different lending criteria depending on the purpose of the loan. For example, if you’re using the loan to purchase an investment property, you may need to provide evidence of rental income or projected rental income to show that the property is a viable investment.
    5. Security
      Finally, lenders will consider the security you’re offering for the loan. For low doc loans, the property you’re purchasing or refinancing will typically be used as security for the loan. Lenders will assess the value of the property and consider the location, condition, and any other factors that may affect its value. This helps ensure that the property is sufficient security for the loan, and that the lender can recover their money if you default on the loan.

Overall, applying for a low or alt doc home loan in Australia can be a more complex process than for a standard payg employee. However, by understanding what lenders are looking for, and ensuring you have all the necessary documentation, have a quality submission prepared by your broker and have evidence to support your application, you can increase your chances of being approved.

Speak to us today about your scenario and we will gladly tailor a solution that meets your exact needs.

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