A friend of mine who recently started her own personal training business said to me the other night she wouldn’t be able to get a home loan. I asked her why? Her business was doing well, wasn’t it? And she responded “because I am self-employed”.
But that’s where she was wrong. While self-employed borrowers may not be able to provide traditional evidence of a stable income ¬ – generally because their income fluctuates or they do not have up-to-date financials – there are still options available to them.
Low documentation lending, also known as low doc lending, refers to the mortgage options available to borrowers who don’t have the documentation, or employment stability, required to support a home loan application.
While the global financial crisis and the introduction of stricter credit laws have seen lender criteria for low doc lending tighten up, many lenders will still lend up to 80 per cent of a property’s value to the right candidate, and sometimes upwards to 95 per cent.
Low doc lending is generally riskier for lenders and they will often require you to take out lenders mortgage insurance, even if you’re only borrowing 60 per cent of the purchase price. Low doc borrowers may also find themselves paying a higher interest rate than a full documentation borrower.
If you’re self-employed and keen to find out whether you will be eligible for a home loan it may be a good idea to visit a mortgage broker. A broker, who can offer you loans from a whole panel of lenders, will know which lenders offer low doc products, and which lenders’ criteria might be less strict than others.
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