New Zealand has a large number of self employed people and small business owners whom find it difficult to meet the banks criteria when it comes to proving income.
That’s the main reason some of the non-bank lenders have created low doc home loans.
The problem is many self-employed people will talk to their bank first, so many don’t even know that low doc home loans exist.
Self Employed Find Bank Criteria Difficult
When self employed Kiwis talk to their salaried banker they often get disillusioned with the banks criteria.
They might think that they are doing okay financially (and probably are) but the bank has strict criteria on how income is calculated and often this is a lot different to the reality.
A typical credit policy from a bank will state that two years evidence of income must be provided, and the lower of the most recent year or average of two years must be used. The “proof of income” for a self employed person would normally be the financials prepared by an accountant which includes income, the expenses and therefore the profit and/or shareholders salaries. Some expenses may be able to be added back in to increase the profit and this varies from bank to bank, or lender to lender.
The banks will want to see the final financial accounts for 2-years and will be looking to ensure that the tax liabilities are up to date – they hate any late payments to the IRD.
As a mortgage broker I am self employed too.
My name is Yatin and I understand that income can vary and there will often be times in business when you may be unable to prove the level of income that you may be making.
- Your income may dip in a particular year and therefore the bank default to the lowest income.
- You may be growing your business and therefore for a period have higher expenses before your income catches up.
- Some new businesses will be slower than others to build up an income.
- Some self employed people will have increased income significantly, but not yet have 2-years of good financials
- Accountants may design things to show a lower income – totally within the rules of course!
These are things that we see with a lot of self employed people that have caused the bank to say “NO” to an application.
Let’s Talk About Low Doc Home Loans
If you are self-employed, a business owner, a contractor or seasonal worker then a low doc home loan may be the right solution for you.
Low doc home loans have benefits for many people including;
- Simplified paperwork
- An easier way to demonstrate income
- No requirement for 2-years in business – some low doc lenders require as little as 3-months of being self employed
- The ability to access cash for business purposes or personal reasons – equity release
Banks no longer offer low doc loans but as a non bank broker I have access to a number of mortgage providers that offer long-term mortgages at competitive interest rates.
Plus we have short-term options available as bridging finance too.
If you are self-employed, a business owner, a contractor or seasonal worker you may find that the banks are not too interested in providing you a home loan.
This is when a low doc home loan may be the best option.
