As borrowers and their needs diversify in a modern society, the need for near-prime and specialist lending solutions will also increase.
Nearly 8% of Australian workers are independent contractors* and 40% of broker customers are reported to be self-employed~ – that’s a lot of potential borrowers who may not meet the criteria for a traditional prime full doc loan.
There’s no one size fits all for loans, especially when it comes to self-employed borrowers or those with poor credit (credit impairments). Increase your offering and grow your business through near-prime and specialist (or non-conforming) loans.
Homes, cars, non-property investments, business equipment or stock could potentially all be financed through near-prime or specialist (non-conforming) loans
Prime alt doc loans – also called Lo Doc loans.
A loan type that offers great interest rates and allows self-employed borrowers to use alternative forms of income verification beyond payslips and tax returns.
For example, self-employed small business owners may not have two years of full end-of-year financials, or their full-year financials don’t accurately reflect the current trading conditions of their business. In other instances, there may be complex business structures that would make providing full documentation hard. Alternate forms of documentation can be used to show their current income.
Specialist (non-conforming) loans
Often, specialist or non-conforming products are associated with debt consolidation – but they’re capable of being used for so much more.
Specialist products are particularly suited to four types of applicants:
– Borrowers with a history that includes poor credit, such as mortgage, credit card, car and personal loan arrears, defaults or bankruptcy.
– Borrowers who need to consolidate debt, including ATO or private/solicitor funding debt.
– Borrowers with more diverse credit needs than just purchase and refinance.
– Borrowers using security that is considered riskier (such as location category B and C) and also need a higher loan-to-value ratio.
Simply put, specialist loans are great for applicants or scenarios that are a little ‘outside the box’. They may not fit traditional prime lending policies because they may be considered slightly riskier.
Also, where prime full doc products usually only count a portion of any income other than full time income, for example 80% of investment, bonus or overtime income, specialist (non-conforming) products may count a higher portion, such as 100% of that income.
As with prime loans, specialist loans can be full doc or alt doc:
Specialist full doc loans
These types of loans could be used when a borrower has regular income and standard documentation but their credit history is less than perfect, or when they’re relying on diverse income sources.
Specialist alt doc loans
This product is typically suitable for borrowers whose credit history is less than perfect and those who can’t meet full doc application requirements, such as the self-employed.
Near Prime and Specialist Loan Customers
As Australian customers become more diverse, so to do their needs, aspirations and their financial situations. Doing things differently is now becoming the new ‘normal’ and this should be celebrated. Near-prime and specialist products are just as diverse as customers are – they’re specifically designed to suit their unique needs and expectations.
Often applicants aspire to be a prime loan customer, but they may not be eligible for one reason or another. It’s worth reminding them that the type of product they’re eligible for now is just a reflection of their current circumstances. In the future, with the help of prime alt doc or specialist, they may be eligible for the product they aspire to.
In some cases, applicants will want to hold out in the short term until their circumstances change and they’re eligible for a prime full doc product. But they risk incurring ‘opportunity costs’ – which are the costs of delaying a purchase (until they qualify for a prime loan) and missing out on the opportunity. These costs can far outweigh any benefits received once they obtain that prime loan. Often, committing to a near-prime or specialist product now is the more practical and cost-effective solution.
For the variety of borrowers that are Self Employed – never say its not possible – till you talk with an experienced finance broker. Book a Chat
Special thanks for one Lo Doc lender Resimac for their marketing materials.
* www.abs.gov.au/statistics/labour/earnings-and-work-hours/working-arrangements/latest-release
