If you are self-employed and considering getting a home loan to purchase a property or to refinance your current home loan it is important to understand that when you are self-employed the lending criteria is quite different to a PAYG borrower.
It can be more difficult in some cases to get a mortgage when you are self-employed however most lenders do have a few different options available for the self-employed borrower.
With careful planning and the right broker, you can be confident that your home loan is suited to your current financial circumstance even if you are self-employed.
The types of loans on offer for self-employed applicants are a full documentation loan or low or Alternative documentation loans.
Full Doc Loan: Unlike loans for salaried employees, when you are self-employed you will need to show proof of income over the past two years. If you are a sole trader the lender will need to see your last two years individual tax returns and your last two years ATO notice of assessments. If you are a Pty Ltd company or a trust they will need the above documents and your last two years company/trust tax returns and your last two years company /trust financials.
Low or Alt Doc Loan: Most lenders will have a low doc or alt doc option for self-employed applicants, criteria for these types of loans will vary depending on the lender but in most cases, they may request a declaration from you and your accountant confirming your income, your BAS statements, company bank statements or ATO portals from your accountant.
The LVR (Loan to Value Ratio) that the lender will approve will differ as well, depending on whether your loan is an alt doc or a full doc application.
Full doc applications will have the same LVR restrictions as a PAYG borrower, in most cases the lender may lend up to 90% of the purchase price and with some lenders 95%.
With alt or low doc applications the LVR will be restricted anywhere from 60% to 80% of the purchase price, depending on the lenders criteria and the paperwork you supply to the lender.
Interest rates may also be different for self-employed alt doc loans.
You need to understand the benefit the loan will give you, and if the interest rate is high, have an exit strategy in place to help you work towards changing your risk to the bank and enabling you to move back to the full-doc application position with better rates.
If you are self-employed and looking for a home loan talk to Angela Dye to help set a plan for your finances and for future borrowings. Make an appointment to Ask Ang.