Low Doc Home Loan

Hi all,

I am looking to get a home loan to finance the purchase of a home, however i don't have a tax return from the last financial year and other financials required to prove income.

What would i need to do in order to get approval? I have heard that some lenders want BAS statements? This would defeat the purpose of providing no documentation?

What should i do?

Susy.

[Otto Dargan]

Hi Susy,

Low doc loans are still available however they are now harder to apply for than they were last year. Many lenders have taken a "limited income evidence" approach. In other words just an income declaration is not enough! Many lenders now require BAS statements, an accountant's letter or bank account statements as additional evidence to back up the income you declare.

Yes this does defeat the purpose of a low doc loan to a certain extent. However we find that most customers who are not overstating their income can usually provide one of the three methods of verifying their income.

For low doc purchases often we do not need any additional documentation other than the low doc declaration, so things are quite simple. For low doc refinances up to 60% of the property value again things are quite simple. It is only low doc refinances or low doc construction which tends to be more difficult.

Generally our mortgage brokers talk to people who need a low doc loan and try to work out which lenders they would qualify with and what kind of income evidence they would need to provide (if any). Then we can create a short list of lenders and loans for them to choose from. If you would like to know more then call one of our brokers on 1300 889 743.

Hi Otto

Just found this site and subsequent forum and think its a fantastic idea so well done .

I haven't started a new thread as my question applies to this thread also. Initially I just wanted to refinance my current home loan for an investment property and through my research (no official applications lodged) I have discovered it would be easy to obtain a Low Doc loan as Im looking to refinance only up to 60%. I then stated to toy with the idea of refinancing as well as buying another investment property only to an 80% LVR.

My current loan is a low doc, I have had an ABN and GST Registration since 2002, however in June 2008 I canceled my ABN/GST as I wanted a career change. Realizing I was better in business I reactivated it in Jan 2009 to date, therefore its been 18 months since reactivation. Not sure whether it has any bearing?

To cut a long story short I wanted your professional opinion as to the likelihood of success for a low doc loan to 80% LVR, without BAS/ATO Statement requirements (I understand its more strict these days) and only a Stat Declaration for income. Preferred rate to a max of 8%, ideal 7-7.5%

My situation is as follows:

Single Applicant
Credit Situation: Very Good
Current Loan: $166,000
Only 1 Credit Card: $10,750 (nothing owing and happy to reduce to any minimum)
Personal loans: None
Value of Home: $305,000 (conservative)
Current Rental Income $280 p/wk (lease has been renewed and new rate of $285 to commence end of Aug 2010)

Savings: but would prefer using my equity only

Future Property Purchase: $300,000 MAX (possible rental income $265-$270, dependent on suburb)
Costings: $15000 (Stamp duty, loan fees etc)

So my total loan would be $481,000 and total value combined $605,000 ie 80%LVR (i think)

I currently live with parents so I'm not sure what amount lenders allocate for living expenses in my situation.

PS: Would it be better to build (using a project home builder) or buy established with Low Doc 80's.

Sorry for the long post.
Thanks

[Otto Dargan]

Hi,

The combination of ABN active for 18 months, no BAS & refinance at 80% makes this a very tough scenario to place. There are some possible solutions:

* I called a friend of mine who works for a lender that can accept an accountants letter which verifies your income instead of BAS and can accept refinances at 80% with a low doc loan. He said that depending on what industry you are in & if you were working in that industry when your ABN was deactivated then they may be able to help. Their rates are below 7%!
* If you can provide 6 months business trading statements then there are some lenders we can consider at 8.3% to 9.5%.
* One of our lenders can refinance up to 70% of the property value with an ABN valid for 12 months only. No BAS are required however you must provide extensive evidence as to what you are using the money for. With a property purchase this is easy, however 70% will not be enough to help you buy a property.
* You could wait until January next year and then we would have more options available.

I believe the first option is the best choice. Which industry is your business in? Were you working in the same line of work as a PAYG? Can your accountant write a letter to verify your income?

Low doc construction at 80% is possible, however it may limit our choice in lenders. It would work with the first option I mentioned.

Hi Otto

Thank you for your reply.

To answer some of your questions. Regarding an accountants letter the answer is no. The type of business is in the cleaning/asset management industry and during the 6 months I was working in the same industry, just dont ask for a reference hence my return to self employment.

Incidently my ABN history does show my original ABN/GST registration in 2002 to June 2008 then reactivation in Jan 2009. I know that a min of 2 years is what many lenders now require and its understandable.

My original plan to only refinance to 60% is simple and straight forward just wanted to know if I can make my current investment property work for me better rather than refinance at 60% only to regret not using the equity.

The final option of waiting till Jan 2011 is also not a bad idea and its only 4 months and maintaining the current status quo is not a problem.

Your help was much appreciated.

Rick

[Otto Dargan]

Also note that in Jan 2011 new legislation will come into effect for lenders which is likely to result in all low doc loans requiring either BAS, an accountants letter or business bank statements to help verify the income you declare. So in all likelihood you will need one of these if you apply then.

I didn't know about that which now puts me in a dilemma. I will keep that in mind when making my decision.

Much appreciated.

[Otto Dargan]

If you like just ask me in December and I'll let you know what announcements the lenders have made as to their low doc loan policy changes. At this stage it is all up in the air, however it is hard to see how any lender could find a way around it.

Hi - with regard to Low Doc loans what about:

A small 2 x resi unit development (<500k), where 30 percent equity provided.

The applicant (and also would be- builder for the development) a recently registered builder (has abn but no real trading history), just finished building own house with therefore no recent income, but sufficient cash savings to reasonably fund project.

Given the involvement in the project is 'theoretically' a form of normal income how do lenders see this sort of situation?

Can accountant letter knowing future rental income + potential income will service debt, provide letter of support?

Any thoughts appreciation in advances,

Regards James.

low doc home loan is always needed. Thanks for your information