If you're self employed, a contractor, freelancer or seasonal worker, you most likely don't receive regular payslips. In fact, even some small businesses don't provide their employees with regular payslips or may only provide hand written payslips which are not recognised as proof of income by most main stream lenders.
As the way we earn income changes with the increasing use of the internet and the increase of contract and freelance work, there needs to be a bit more leniency in how mortgage lenders will allow prospective borrowers to substantiate their income.
So can you still apply and be granted a home loan without providing payslips? The simple answer is yes but there are certain conditions which apply and you may need to pay a higher interest rate.
Let's look at a couple of different scenarios of how you can obtain a mortgage without having regular payslips.
If You Are Employed By A Small Or Family Owned Business
If you receive a regular weekly income but don't receive lender approved payslips, there are other ways that you can substantiate your income. These include:
- A letter from your employer stating the conditions of your employment and your regular wage.
- Your group certificate which is provided to you on an annual basis
- Your annual tax return which states your taxable income.
- Bank statements for the past 6 months which clearly show regular payments coming into your account.
If you can only supply one of the above proofs of income, your borrowing loan to value ratio may be limited to 80% LVR of the market value of the property you wish to purchase. If however, you can provide all of the above documents, you may be able to borrow up to 95% of the market value depending on the individual lender.
Low Doc Loans For Self Employed People
If you're self employed as a business owner, contractor, freelancer or seasonal worker, you do have the ability to apply for a Low Doc Home Loan with certain lenders who specialise in these types of loans.
What is required for these type of loans?
- An income declaration signed by you stating the amount you want to borrow and the repayments that you will be making regularly. You also need to confirm that the income you receive will allow you to make regular loan repayments. Some lenders may also require you to verify your assets and liabilities.
- Copies of your Business Activity Statements which clearly show your income and expenses.
- Business bank account statements for the past 3-6 months showing income and expenses.
- A letter or declaration from your accountant as to your current and projected income.
- Business tax returns if you have them as these will help you to secure a loan more easily and at a better rate.
The interest rate on low doc homes is normally 1% to 2% higher than regular mortgages but this will often depend on the individual lender. You may also find that your borrowing is reduced to around 60% of the market value of the home you wish to purchase.
No Doc Loans For Investors
If you are a regular investor and are unable to supply any proof of income at all, then you may qualify for a No Doc Loan. Usually these type of loans will allow you borrow up to 65% of the property value at an interest rate which is around 2% to 3% higher than normal mortgage rates.
These are generally considered as short term loans only and in some cases, you can opt for interest only repayments for up to 3 years. There are certain criteria which must be met for you to qualify for a No Doc Loan. Some lenders may still require you to sign a statement which confirms your assets and liabilities or a declaration stating that you can afford the loan repayments.
Your No Doc Loan must meet certain criteria, namely that it is NCCP unregulated. This means it can only be used for:
- A commercial property over which the loan security is held
- An investment property which is not NCCP regulated if it is a residential property
- The loan must be in the name of a company or a trust and you must provide an ABN
Because the only real security that the lender has for this type of loan is the actual property, you must ensure that the property is in a good location, is in good condition, is larger than 50m2 and is readily saleable.
Most No Doc loans are regarded as short term loans only and generally have a term of 6 months or 3 years. After this time, the interest rate will increase quite dramatically.
For this reason, most lenders will need to know what your exit strategy is to repay the loan once the term has expired. Generally, a suitable exit strategy would be to pay out the loan with the sale of another property.
Talking To A Mortgage Broker Can Help
If you're in a situation where you can't substantiate your income with regular payslips, your best course of actions is to talk to a mortgage broker.
A qualified and licensed mortgage broker knows all the ins and outs of different types of home loans and can advise you exactly which type of mortgage would best suit your needs depending on the amount of documentation that you can provide.
This will certainly save you a lot of time and will give you a certain number of options to consider before you decide to apply for your mortgage.
Rest assured that if you're self employed, a contractor, freelancer or seasonal worker, you can still obtain a mortgage without the need to supply regular payslips.
If you're in the market for a new home loan or want to consider buying a new home, your best course of action is to first talk to a mortgage broker so that you are fully aware of all the options available to you.