A loan when you don’t tick all the boxes

It can be difficult to think about a property purchase if you don’t meet all the criteria for a loan. Perhaps you work for yourself, have recently moved jobs, taken time out of the workforce to raise a family, or your credit history isn’t squeaky clean.

Rest assured that there are still loan options to suit your circumstances, which a broker is well positioned to help you access. Here is the rundown on some options you might not have considered.

Non-conforming loans

Non-conforming loans are suited to people whose situations aren’t clear cut and therefore are likely to face barriers when applying for traditional loans. They provide an opportunity for people with irregular incomes – such as freelancers, those at the end of their careers or who are returning to the workforce – to access financing.

Low documentation loan

One type of a non-conforming loan is known as a low documentation (low doc) loan. These are geared towards people who are self-employed – who have an income and assets, but who may not have all the documents usually required for a loan (such as years of tax returns and income statements).

Instead, a self-verification process is in place, where you sign a declaration stating your earnings. As the name low doc suggests, the reduced documentation needed for these type of loans enables borrowers who wouldn’t usually be able to provide the required information to access a loan.

It’s a misconception with this type of loan that you don’t have to provide any documents, however. As well as submitting an income declaration form, you will likely also need to provide your bank statements and a letter from your accountant which confirms your financial standing. You may also be asked for your ABN, a BAS statement and GST registration details, if applicable.

For those who are self-employed, keep in mind you may still be eligible for a traditional loan. While low doc loans were initially designed for small business owners and self-employed, if you have the necessary financials and tax returns available for assessment you could still be successful in a full doc loan application. We can help guide you and advise the best loan for your circumstances.

Signs you may not be a ‘perfect match’ for some of the lenders:

  • You have a solid income, but only have a small deposit

  • Your work means you regularly change jobs. This can imply you don’t have job stability, however for some it could just be the nature of your particular industry

  • You need to consolidate a few other debts such as personal loans, credit cards or business debt

  • You don’t have a perfect credit history. This may be that you have missed loan/ bill payments in the past or have previously declared bankruptcy

  • You have recently started a business or a new job

  • You are self-employed

Bad credit loans

It’s not the most appealing name, but this type of loan is geared towards people who have difficulty qualifying for a loan due to their credit score. It can also be an option for people with little to no credit history, for example those who have never had a credit card.

If you have a credit score of lower than 700, traditionally a bank would consider you too high a financial risk to approve. This type of non-conforming loan can help you access funds.

Generally, bad credit loans only allow you to borrow a small amount of money, so you’re unlikely to be in a position to make a big purchase, such as property.

Things to keep in mind

It’s also worthwhile knowing that non-conforming loans (including low doc loans) often come with higher interest rates than traditional home loans – this is because they are deemed riskier for the lender with a higher risk you not being able to make the repayments. Therefore, they may have a risk fee attached to them and there might also be stricter loan terms, such as larger deposits required.

Unfortunately, you may not be able to borrow as much as you would ordinally be able to with a traditional loan, so re-approval is key to ensuring you’re aware of how much you are able to borrow before making a purchase.

Another factor to consider is that as non-conforming loans aren’t very common, you’re likely to be limited in terms of your choice of lender. Finally, even non-conventional loans aren’t guaranteed – not all applications are successful.

What you will need

There is a common misconception that you don’t require much documentation for these types of loans, which is not the case. While your circumstances may be more complex than a straightforward application, you will need to be able to show your income and demonstrate the capacity to make the repayments for your potential loan.

As with a traditional loan, you’ll be required to complete an application form and, generally speaking, at a minimum you will need to provide a copy of your ID, bank statements and proof of income.

Finding the right fit

Non-conforming loans can be beneficial but they’re not the right choice for everyone. Having the assistance of a broker can help you navigate the different loan options and find the best fit for your circumstances.

If you don’t tick all the boxes when it comes to applying for a home loan, we can guide you through the loan application process and can help find the right solution for your circumstances.

Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

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