And trying to get finance can be worse!
At Think Financial we understand this, remember we are self employed to. Over the last few years there have been some great advances by the lenders at the required information from self employed applicants to get finance approved.
If you have dreaded the finance arena, maybe it's time to take another look.
As part of the approval process applicants must provide the lenders with confirmation of their income. If you are a PAYE earner this can be quite easy as you can provide pay slips, or a letter from your employer.
For self employed it's a little more involved. Each year you will put all your financial information regarding your business to your accountant and complete your full financial accounts. In simplistic terms these accounts will state the business income, the business expenses and the funds left over would be deemed your income.
The income left is what the lender will use as your income for the purposes of borrowing funds.
The issues arise with:
Lenders like to see 2 years accounts and take the average earnings - you may not have 2 years accounts complete
The accounts are delayed, its for the year previous, what if your current income is better?
What if your accounts are not ready at the time you need finance?
As you can see, if can be a lot more difficult for those of us who are self employed.
A few years ago the non bank lenders introduced a new product designed for the investment market, since then the products are available at all lenders. introducing Lo Doc lending
Lo Doc Lending means a self employed applicant can declare their income without proving by supplying 2 years full financial accounts.
The following documents may be required to support the application (although will vary by lender):
Signed declaration of income
Bank statements showing income deposits
May ask for confirmation of self employment - current invoice
May ask for GST returns
The lender may from time to time ask for further information.
There are 3 main differences to a standard loan applied for by a verified income earner.
These differences are:
the deposit required
The amount of deposit required
The Fees charged
The information required
You will see lenders advertising 100%, 95%, and 90% lending, which means an applicant can purchase a property with no or little deposit.
For Lo Doc applicants, the deposit level required is higher from 20 - 35% dependent on the lender. fees charged
There are 2 different fees and the lenders will charge; Lenders Mortgage Insurance or a Lo Doc Application fee.
The Lenders Mortgage Insurance fee, is a premium that is charged to you (the fee can be added to your loan) and is a one of fee. It is based on % of your loan amount, and the fee is passed onto the insurance company who is underwriting the loan on behalf of the lender.
The Lo Doc application fee varies from lender to lender as a set $400 fee to a % of the loan amount. this may also be added to your loan.
Other than the income declarations and information stated above, the main difference will be the provision of a registered valuation.
In some cases a registered valuation is needed for applicants with a verified income, but for Lo Doc applicants they are nearly always requested by the lender.