Low Doc Loans For Self-Employed Mortgages

How Difficult Is It To Get A Loan Approved?

Meeting the criteria for having a loan approved these days is much more difficult than ever before. Loan providers prefer low risk lenders which has had a direct impact on the ability of self-employed individuals having their mortgages approved. This has resulted in some major changes being made to stated income loans and low-doc loans which have been the primary home financing option for the self-employed.mortagage brokers

In fact, changes have been so drastic that private financial institutions have entirely eliminated stated loan applications where lenders need to certify their own income. low-doc loans have therefore become the main, and sometimes the only, option available for self-employed individuals.

What Are The Requirements For A Low-Doc Loan?

Low-doc loans don’t actually mean that no paperwork is required for a loan to be approved but rather that the loan requirements are not traditional. Due to the fact that payslip and tax returns cannot be used to determine individual income, other means must be used to accurately assess the income of a self-employed individual. Previous tax returns are not suitable for this purpose as deductions for expenses provide inaccurate figures.

The income verification system for low-doc loans is therefore more complicated. Applicants need to submit bank statements, proof of assets and a Business Activity Statement, all of which need to be verified and certified by a public accountant.

                              

What Are The Additional Requirements?

Applicants need to provide information for a specified period of time which normally means that they need to be self-employed for a period exceeding 2 years. They need to demonstrate sound accounting and record-keeping practices in order to prove the success of the business. Additional security may also be necessary in the case of unverified income statements.

A credit rating of over 700 and proof of value of assets to the tune of 25% of the required loan amount may be required. A deposit or down-payment of at least 20% of the purchase price of the property will also be necessary. Emergency reserves to cover mortgage repayments for a period of between 6 and 12 months may also be requested.

Who Qualifies For A low-Doc Loan?

Most self-employed individuals who are able to meet with the above criteria qualify for a low-doc loan. However, this does not necessarily mean that the loan amount will be approved. All types of financial institutions and loan providers have restricted the approval process due mainly to the impact of the Global Financial Crisis on the industry as well as the increased rate of defaults on these types of loans.

While it may currently be more difficult to receive approval for low-doc loans, it is not impossible for self-employed individuals to obtain a mortgage by taking this route.

 

Can A Low Doc Loan Help If You’re Self Employed?

Are The Banks Finally Coming to the Party?

Traditionally, when it came to applying for financial assistance, the person who is self-employed was commonly left out, leaving him or her at a significant disadvantage. Since income and financial documentation play a role that is vital during the process of approval, this often means that sole traders fail to provide the relevant parties in the financial institutions with the paperwork that is required to obtain a loan.recent brokers news

Fortunately for those that are self-employed, money lenders have finally come into realization that there is a great deficit in this area of the market and so they are working hard to open up the market for these kinds of business people. This has been achieved through the provision of low doc car and home loans which have been designed specifically for those individuals who do not have the supporting documentation required to get a conventional loan.

So, who can apply for low doc loans? 

Essentially, these kinds of loans have been designed specifically for any person who does not have income documentation that can support a conventional loan application. These loans can be very useful if you are a sole trader, independent consultant, contractor or any other person who is engaged in a changeable employment situation.

Over a very long stretch, people have been faced with great challenges when it came to getting finance for their business activities. Usually because they found themselves in a situation whereby they were unable to show proof of a long term and stable personal cash flow. These types of loans make it possible for a person who does not have evidence of a long pay slip to pay for items they would otherwise find it impossible to acquire.

                               

How do low doc loans work? 

Low doc loans are not much different from conventional loans. They work pretty much the same except for the fact that they require very little paperwork. With the reduction of paperwork however, there is a catch. The interest rates applied on these loans are slightly higher than those charged on conventional loans. But if you have the ability to make payments above your minimum schedule payments then you will be on the hook for a lot less time, saving you lots of money in interest rates.

The fact that these loans entail less documentation does not necessarily mean that all other factors considered in evaluating whether a person qualifies for a loan will be put aside. Some factors like presence of security for default of payment and credit score will still play a great role in getting you the loan. Provided you have a good credit history, then getting a loan will probably not be very difficult.

Are Low Doc Loans the Answer for You?

A low doc loan does not exempt you from providing the lender with proof of your ability to pay. Since they will not require work documentation such as your pay slip, they can opt to ask for banks statements so as to have proof that you have the capacity to pay back the loan. Once these statements can satisfy the lender’s lending criteria, you are one step closer to getting your loan.

One of the most antagonizing aspects of being self-employed is getting finance for your business. You may be confident in your abilities to afford the loan, but it is difficult to convince a lender without relevant documentation. If you are in such a situation, then a low doc loan is a great option for you.