With the memory of the recent financial crisis still fresh and the resulting credit tightening still in effect at most financial institutions many would-be homeowners are still standing on the sidelines assuming that credit is out of reach for them. That’s where Specialist Lenders come into play as these Funders cater for applicants that do not meet mainstream lenders’ credit criteria. The type of loan is often seen as a stepping stone to help individuals get back on track and after a period of solid payments the loans can be refinanced to a lesser rate.
There are many reasons why certain borrowers will not meet the lending requirements set out by traditional lenders:
- Bad credit history – these borrowers have generally experienced a “life event” such as a marriage breakdown, illness or a business failure and are considered high risk by most lenders even if they have overcome the event that caused the impairment.
- Loan Purpose – these borrowers may require cash out to pay tax debt or consolidate multiple unsecured loans such as credit cards, personal or car loans or business debts and can be rejected by prime lenders.
- Credit Scoring – Most Banks and Mortgage Insurers have adopted statistics-based credit assessment models that do not offer the flexibility specialist lenders can provide.
- Non Standard Income – borrowers with irregular income, such as Contractors, applicants on Probation, or Short Term Employed.
- Self-Employed without lodged Tax Returns – A Low doc loan is aimed towards self-employed people who cannot provide the required paperwork such as tax returns or financial statements to get a home loan. Low doc loans are gaining in popularity as more and more people have started working from home. As the name suggests, low doc loans are designed for those who do not have lodged business returns to support their incomes and are widely available in Australia. People usually apply for low doc loans to buy a property or to obtain cash immediately. Low doc loans can be applied for by those who
- If you are recently self-employed and do not have over 2 years of properly lodged accounts to provide evidence of your income
- If you are self-employed and have a complicated business structure
- Your tax returns are not up to date
- Your income has increased since the last time you had a tax return
Low doc loans must still have the income verified, the main documents that can be used to verify income are:
- Last 3 > 6 months of Business Bank Statements
- Last 12 months of lodged BAS Statements from ATO Portal
- On-going contracts for self-employed contractors
- An accountant letter verifying your business income before tax
There are certain requirements of getting low doc loans. The requirements vary from lender to lender but some of the major requirements include;
- Length of ABN and Gst Registration: You should have an ABN that has been registered. Most lenders require ABN to be registered for between 12 and 24 months and GST registration if required for 6 months.
- Reasonable income: There should a reasonable amount of declared income for the business. Lenders look to see if income and the current assets are in line with the type of business and the age applicant
- Security: Some funders take a risk on the applicant but not on the security. Therefore, properties that are in non-metro with populations under 10,000 people or in despair or that are difficult to sell will not be accepted
When it comes to credit impaired, low doc loans or Non-Conforming Loans, it is important to have a good Broker who understands these loans with many lenders as options. Our Website www.lowdocmortgages.com.au is a good guide to what products are available for anyone who wants a home loan that does not meet standard lender criteria.