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What is an ALT DOC home loan for self employed?

Historically, it has always been more difficult and complicated to apply for a home loan as someone who is self employed running a business. Although there’s been recent changes with some major banks that’s making it easier for self employed customers to get a home loan, majority of business owners still find getting a loan difficult.

How can an ALT DOC home loan help me as a business owner?

Alt Doc stands for Alternative Documentation. This means, instead of the usual documents such as last two year’s tax returns, the bank will look at alternative documents to determine your amount of income when applying for a home loan.

You don’t have your most recent tax returns completed

Many business owners will not have their latest last two financial year tax returns completed or lodged to the ATO. This is because as a business owner, you have the option to lodge your tax returns much later after the end of the financial year on 30 June compared to someone who is a company employee.

In this case, the bank will not be able to determine your income and unable to lend you any money for a home loan.

Alt doc home loans allow the bank to determine your income via your Business Activity Statements (BAS), business bank account transactions and/or a declaration from your accountant confirming your amount of income.

These home loans will attract a higher interest rate than full doc home loan (using company tax returns) however, it will provide a solution for you to purchase a property and you can then refinance your loan once your tax returns are prepared.

Your business income has increased recently and is not reflected in your past tax returns

You’ve experience strong growth in sales in your business which is not reflected in your past tax returns but you require your current level of business income to secure your home loan.

By using your BAS or business account statements, the bank is able to determine your current business income which will be higher than your previous business that’s reflected in your tax returns.

Are Alt Doc home loans more expensive than a full doc home loan?

Alt Doc home loans are more expensive than a full doc home loan, however, it’s important not to assume that it is not worthwhile to consider just because the rate is higher.

In most cases, depending on your particular situation, the difference in interest rate is only 0.80% to 1.00%.

Here is a recent example of an Alt Doc home loan solution we provided to one of our self employed business customers.

What did the customer require?

Borrow $420,000 against the customer’s current property so he can use the funds to purchase another investment property.

The customer wanted an investment loan and the repayments to be interest only for 5 years so he can maximise his negative gearing and tax deduction benefits while keeping the repayments on the loan as low as possible to create a better cashflow situation.

What did we need?

The customer’s business has recently improved their sales and revenue significantly by doubling their turnover compared to last year. If we relied on his previous company tax returns, he would not qualify to borrow this amount.

Instead, we used his last two quarter’s of BAS to demonstrate his improved sales so we can use the higher income for his borrowing capacity calculation.

What was the solution?

We researched all the banks that offer Alt Doc home loans and determined that the lender Resimac provided the most competitive interest rate, and fees for his new loan.

We provided 7.54% variable rate for investment and interest only for 5 years. There are no ongoing fees and the only upfront fee payable was the cost of the property valuation.

If the customer applied for a full doc loan with Resimac, the rate would be 6.69%. That means, the difference in rate for the Alt Doc solution is 0.85%. This is a small price to pay when considering this enabled the customer to purchase another investment property to build his investment portfolio.

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