When you own a business you have to stay on top of your day-to-day finances and be skilled at balancing your income and expenditure. However, getting a home loan can sometimes prove difficult for business owners because the paperwork that many lenders require is often not available when it comes to supplying proof of income. If this is a problem for you, it may be the right time to seek out a home loan that is specially geared towards business owners.
Why opt for home loans for business owners?
If you are self-employed, working freelance or are a relatively new entrepreneur in Australia, you might find that home loans for business owners are of great benefit. For example, a ‘low doc’ home loan allows you to minimise the amount of documentation that’s normally expected in order to get a loan – think pay slips, income evidence and tax returns. Of course, if you have sufficient up to date financial documentation you may be able to access a standard home loan instead. Some business owners opt for home loans purely for investment purposes, while others use them as business loans or to help them to continue to occupy their own premises.
What are the main choices for home loans for business owners?
The choices you will have reflect the home loans marketplace and when you are considering a low doc loan check out both the fixed rate and variable rate options, depending on your circumstances. If you have a secured property, you can also borrow against its value.
- Fixed rate options mean you are locked into a specific rate for a given period, making it easier to manage your budget.
- Variable rate options mean your repayments can go down as well as up and this provides you with a degree of flexibility, but also less certainty than the fixed rate alternative.
- Borrowing against the value of your home is a third option, best utilised if you are confident that the property market is buoyant.
What are the rewards and risks?
On the plus side for home loans for business owners you have less paperwork to deal with in terms of providing documentary evidence of your income status; your personally signed statements are generally accepted. You also have a range of choices when it comes to the type of loan you want.
On the negative side, you will most likely discover you are paying higher interest rates and that higher fees may apply then are normally charged on home loans. You may also see that the lender will apply a lower LVR (loan to value ratio), which simply means that you can borrow against your property’s value but to a lower ceiling than applies to other types of home loans. Beyond this, if for instance you want to borrow more than 60 per cent of the value of your property, you may be required to take out additional insurance. Lender’s Mortgage Insurance (LMI) is the most common and there may additionally be other fees. Always investigate every aspect of a loan agreement before committing to it.