Oct 1, 2020
As we know, all borrowers have different circumstances and that’s why there is never a one size fits all approach when it comes to lending.
For the majority of full-time employees with a good credit history, you will likely have a range of options and be able to look at a regular home loan.
To access a regular home loan, you might only need three months of payslips or two years of tax returns. Generally speaking, regular home loans are a lot more stringent and that’s why we see some regular home loans with very low interest rates.
Unfortunately, for the self-employed and business owners, it’s not always possible to present two years of tax returns or payslips. For these types of borrowers, there are other avenues to getting finance for a home, one of which is by providing alternative documents (alt-docs).
Lenders that offer alt-doc loans will normally require three months’ worth of personal bank statements and six months’ worth of business activity and business bank statements, or potentially even an accountant’s declaration.
Given the borrowers’ income is not as black and white as a PAYG employee, interest rates will normally be higher, while there might also be higher loan application fees and setup costs.
It is important to note that just because you might be self-employed or a business owner, you don’t automatically need to go for an alt-doc loan. If you’re able to produce two years of tax returns and have a good credit history, then you should be able to qualify for a regular home loan at lower interest rates.
However, if your business has recently seen a large increase in revenue and you want to access a larger loan, then it might be worth looking at an alt-doc loan. Similarly, if you’ve had credit issues in the past that you’ve been able to turn around, then an alt-doc loan might work for you.
There are also a few myths out there, surrounding alt-doc loans. The main one is that you can get a loan with no documentation at all. Those days are long gone and you will need to be able to prove that you have the means to service the repayments. The second myth is that the big banks don’t take on these types of loans. In many instances, the major banks are able to look at lending to people without the full documentation, given they have the size and diversity to handle different amounts of risk.
Once again, the key is to talk to a mortgage broker who can quickly understand your personal circumstances and match you with the right solution for your needs.