The lowdown on home loan income verification
If you’re self-employed or a small business owner, borrowing money from the bank can be somewhat challenging. They require extensive proof of regular income as part of their approval process, which can be problematic if your income isn’t consistent or your business has undergone some recent changes.
For some, jumping through so many hoops to buy a home can be stressful and disheartening. But these days, there are more options available – if you look beyond traditional bank lenders.
When you start exploring self-employed home loan options from alternative lenders like Bluestone, you may come across a few terms that make you scratch your head.
This article explains three important terms you may encounter as a self-employed applicant – the difference between three income verification methods: full doc, alt doc and low doc.
Full documentation (full doc)
A full documentation loan is for borrowers who have access to all the income verification documents a lender needs to assess a home loan application. The exact requirements will vary between lenders.
At Bluestone, the documents self-employed borrowers must provide to qualify for a full doc loan depends on the product they’re after:
- If you’re a Prime borrower seeking our lowest rates you’ll need two years’ tax returns and Notice of Assessment
- If you’re a Near Prime to Specialist+ borrowers after a bit more flexibility you’ll need one years’ tax returns and Notice of Assessment
Don’t worry if you’re unable to tick these boxes. You have other options.
Alternative documentation (alt doc)
Self-employed borrowers who can verify their income, but not exactly how mainstream lenders generally prefer it (usually that’s tax returns for two years with a notice of assessment) often seek alternative documentation or alt doc loans.
The term alt doc is often used interchangeably with low doc, making things even more confusing.
At Bluestone, we use the term alt doc. For us, alt doc better describes the level of flexibility we’re able to provide, without compromising our obligation to make sure you can afford your loan. We still require evidence of your income so we can build a realistic picture of your borrowing capacity, but we understand that using your tax returns may not be the best option for you.
To qualify for our alt doc loans, for both our Prime and Non-Prime products you need to complete a customer declaration, and also provide one of the following: your last six months’ business bank statements OR your last 6 months’ of BAS returns OR an Accountant’s Letter.
Low documentation (low doc)
As we mentioned above, some lenders and brokers like to use alt and low doc interchangeably, so it can be confusing to know the difference. But some lenders do offer loans that require very low or even no documentation. All you may have to do to qualify for a low doc loan is sign a declaration that you can afford repayments. These loans are often unregulated and come with a higher interest rate (due to the risk) than other home loan options.
This usually means:
- Higher home loan rates, i.e. you pay more interest
- Higher fees including risk fees, and
- Lenders may require you to take out additional lender’s mortgage insurance – if you can no longer make your loan repayments and default on the mortgage.
At Bluestone, we do not offer low doc loans.
Self-employed home loans made simple
Often people believe that being self-employed means you can’t borrow from the bank, or you may only qualify for a low doc loan. While it can be harder to get your loan approved, traditional lenders are not the only available option for self-employed borrowers. If you don’t have the documents required for a full doc loan, let Bluestone take a look at the income evidence you do have – because it might be more than you think.