So you work for yourself? 

Every year more and more Australians just like you are choosing to sack their boss and go out on their own.  So how does this affect you when it comes to taking out a home loan?

Being a self employed borrower sometimes changes things when it comes to taking out a mortgage.  Whilst you can certainly gain access to all the same home loans as a PAYG or salaried person, it’s become very common for self employed borrowers to look at a Lo Doc (low documentation) home loan option.  Why?  Because let’s face it, being self employed often means complicated financials that may not always tell the full story.

Generally lo doc home loans are available for self-employed borrowers who are unable to provide full financial statements or taxation returns to verify their current income. Effectively, you can declare what your income is by completing an income declaration form.  This offers flexibility if you’re self employed, especially if you’re borrowing money at a time of the financial year when you haven’t completed all your financial statements.

A lo doc loan could be suitable in the following cases:

  • Self employed for at least 2 years
  • Financials not yet done
  • Financials not reflecting the full story
  • Short term self employed
  • A business showing fluctuating annual income

Pros and Cons of a Lo doc home loan

P:  With the minimal income documentation required, one of the perks of taking a Lo Doc loan is that the approval process is easier and therefore usually quicker!

P:  Whilst interest rates can be higher, you usually have the option to transfer over to a traditional loan and therefore a lower interest rate once you can provide traditional forms of income again.

P:  Most Lo Doc loans have all the features of standard variable and fixed-rate home loans.  This means options like a 100% mortgage offset account to enjoy interest saving benefits.

C:  Interest rates can be slightly higher than traditional loans.

C:  There can be limits on the amount you can borrow for example you generally cannot borrow more than 80% of the property value.

Why is my interest rate traditionally higher if I take a lo doc home loan?

Let’s face it, all decision making in life is about looking at the risk.  If lenders are prepared to take a higher risk by lending you money without you providing your up-to-date financials, naturally they can charge a little extra depending on your situation.

Lo doc Home Loan Purpose

  • Investment loan
  • Purchase owner occupier home
  • Refinance
  • Business cash flow
  • Home improvements
  • New vehicle
  • Construction home loan
  • Any other worthwhile purpose

Let’s take a look at a lo doc customer example:

Jeff the electrician

Jeff had been working as an electrician for over 6 years.  He decided he no longer wanted to work for a wage and was confident he could make more money and enjoy more freedom and flexibility by going out on his own, so about 1 year ago Jeff became self employed and business is booming!  Jeff and his wife decide, now that they are earning more money, it’s time to move into a bigger home.  Jeff and Megan head down to their local bank only to find they can’t get a traditional home loan because their business hasn’t been operating for long enough. They are so disappointed because they have already found and fallen in love with their dream home and don’t want to wait.  This is where a lo doc loan is perfect and gives Jeff and Megan the ability to buy their new home straight away.

Pete the florist

Pete has been operating his florist business for over 5 years now. Recently he decided it was time to buy an investment property and start building a nest egg for his retirement.  It’s now October and the bank wants to see all of Pete’s trading figures for the previous financial year.  Most of Pete’s paperwork is still scattered between several draws in his office and he hasn’t even thought about visiting the accountant yet, let alone preparing in depth figures the bank will want to see. A lo doc loan could be the perfect solution for Pete.