Some SMEs do not have all of the usual documentation, such as your latest tax returns, etc., which are usually required to apply for a home loan. However, there are alternative methods of verifying income for the self employed.

What is an Alt Doc home loan?

An Alt Doc Home Loan (short for alternative documentation) is designed for self-employed business owners with good profitable businesses. It allows the owners to secure a loan, without the financial statements or tax returns usually required.

With the high demands on business owners, sometimes the timing of business financials and personal or business funding requirements do not line up. However, some lenders allow a more simplified income verification method. This can include business bank statements, Business Activity Statements (BAS) and/or a letter from the accountant to confirm income for loan assessment purposes.

How much deposit will I need?

Whether it be a purchase, a refinance or a business loan, most lenders will require clients to have at least a 20% deposit/equity or possibly more and be required to pay a “Risk Fee” (a different form of LMI). This Risk Fee helps protect the lender, not the borrower, in the event of loan default.

Many lenders waive the Risk Fee, if the client is borrowing no greater than 60% of the value of the property.

Will my interest rate be higher?

Yes, the interest rate will generally be higher, because these types of loans are generally considered to be of higher risk to the lender, due to the nature of the income verification.

It is important for the client to make sure that they are very confident in their ability to repay or service the loan, both now and in the future. Please use Paul’s loan repayment calculator and add a buffer of say 2.0% to the interest rate, to help decide loan affordability.