Low doc FAQ

What is a Low Doc Loan?

A Low Doc Loan is an otherwise normal home or investment loan that does not require the normal income verification such as tax returns, financial statements or payslips.

Instead of providing these documents the lender will ask you to sign a form called an income declaration on which you state your income. The lender then uses your stated income in their assessment.

Are Low Doc Loans only for the Self Employed?

The majority of lenders will only approve Low Doc Loans for the Self Employed. There are however some lenders that will approve Low Doc Loans for Self Funded Retirees, Professional Investors and even PAYG (normally employed) applicants.

The reason why most lenders prefer Self Employed borrowers are that there are legitimate reasons why they may not be able to prove their income. For a PAYG borrower there are far fewer legitimate reasons so lenders ask why they would not provide their payslips as proof of income!

Do I need to tell my lender about my Assets & Liabilities?

Yes, with most lenders you will need to provide a detailed assets and liabilities (A&L) statement. Some such as ANZ even include this on their income declaration form. Lenders look to make sure that your income, age and assets and liabilities all match up. For example a 50 year old with a declared income of $300,000 p.a. but with few assets would raise eyebrows!

What is the difference between a Low Doc and a No Doc?

With a No Doc Loan you will typically not need to provide the full details of your assets and liabilities, nor will you have to declare your income! Although there is variation between lenders, you will normally just sign a declaration confirming that you believe you can afford the indicative loan repayments.

No Doc lending is usually the domain of expensive private lenders that also do not care about your credit history! Rates for these private lenders can range from 2% to 6% per month, which is up to 72% p.a.! Unfortunately that was not a typo!

However there are one or two lenders that are “Prime” No Doc lenders, which will not charge a higher rate than their normal Low Doc Loans. These lenders will do a credit check, investigate the repayment history on your current loan and will usually not consider any defaults. Typically the cheapest and best No Doc Lenders will lend up to 70% of the value of your property.

What does LVR mean and how does it affect the price of my loan?

LVR is short for Loan to Value Ratio. The LVR is one of the ratios used by lenders to determine the risk of your loan and so determine if it should be approved. The LVR is calculated by dividing the loan amount by the lesser of the value of your property or the purchase price (for purchases only) and then multiplying by 100.

For example a loan of $500,000 on a property worth $1,000,000 would have a 50% LVR. A loan of $1,000,000 secured by three properties worth $500,000 each would have an LVR of 66.67% (1,000,000 divided by 1,500,000 x 100 = 66.67%).

The majority of lenders consider 60% LVR to be safe with Low Doc Loans. Between 60% LVR and 80% LVR the lender may require that your loan be insured by a Lenders Mortgage Insurer. Over 80% LVR is considered to be a high risk and the choice of lenders may be limited.

How much can you borrow with a Low Doc Loan?

The maximum any of our lenders will approve is 95% LVR (95% of the property value). This is a more expensive loan, the cheapest Low Doc Lenders will not lend more than 80% LVR.

Typically if you are borrowing up to 60% LVR you have no maximum loan amount! In fact you can borrow $2,000,000, $10,000,000 or even more, all with no income evidence!

If you are borrowing 80% LVR then most Bank Low Doc Lenders will restrict your loan to $1,000,000.

With No Doc Loans most prime lenders will restrict your loan to a maximum of 70% LVR or $1,000,000, whichever is the lesser.

Do only non-bank lenders offer Low Doc Loans?

Low Docs have become accepted by most major lenders including the six largest banks: the Commonwealth Bank of Australia (CBA), Westpac (WBC), ANZ, National Australia Bank (NAB), St George and Suncorp Metway. There are large variations between their lending policy and pricing.

Why should I use a Mortgage Broker for a Low Doc?

Because of the large variation between lenders it is essential that you talk to an expert to find the best deal for you. In fact with Low Doc loans there are now basic loan and professional package discounts available from some lenders, just like with Full Doc loans!

The major differences between lenders are in their LMI premiums and the application fees and valuation fees that they will waive. This information is not published by lenders, but is known by mortgage brokers!

Our services are free for standard residential loans! So you get to choose from the major banks and other low doc lenders without paying anymore for having the help of an expert!

How can I switch from a Low Doc Loan to a Full Doc Loan?

Some lenders will allow you to switch to a full doc loan for a small fee after two years of good conduct (on time repayments). Some lenders will require full income verification such as tax returns when you want to switch to a full doc loan or if you try to switch when you do not have two years of good conduct. With other lenders there is no need to switch because low doc and full doc loans have the same interest rate! If in doubt just talk to us and we can help answer your questions.

How do I apply for a Low Doc Loan?

We are specialists in Low Doc Finance and can help you find the right lender. Just go to our Apply for a Low Doc Loan section and send us your details. We’ll be in touch with a few competitive quotes and will answer all your questions!

Do you need an ABN?

No, it isn’t essential to have an ABN to get a Low Doc Loan. Some lenders need proof of a registered ABN, others do not need proof of an ABN. Since the majority of lenders do require that you have an ABN we recommend that you talk to us if you cannot provide a registered ABN in your name.

Does the ABN need to be GST registered?

Australian Taxation rules require that if your turnover is over a particular threshold then your ABN must be registered for GST. This is important to a lender because if you declare an income of $200,000 and this is above the threshold for GST registration then the lender would ask how you can earn $200,000 without being registered for GST? This would often result in the loan being declined.

If your ABN is not GST registered and you are declaring an income over the threshold then you should contact us to discuss which lenders do not require you to be GST registered.

How long does the ABN need to be registered?

The majority of lenders require that your ABN be registered for at least two years. Some lenders have a shorter ABN registration period requirement such as one year or even one day! Of course if the lender does not need an ABN then it doesn’t really matter anyway. For a No Doc loan you will typically require an ABN to be registered for one day or will not need an ABN at all.

Does it matter what type of ABN I have?

All types of ABNs are acceptable to most lenders. Sole traders, partnerships, companies and trusts are fine. It can get difficult if you are a shareholder but not a director of a company because it is more difficult for lenders to identify that you are associated with that company. The same is true if you are the beneficiary of a trust but not the trustee or director of the trustee company. These situations are assessed on their merits by lenders.

What is LMI?

LMI stands for Lenders Mortgage Insurance. This is insurance for the lender, allowing them to recover their losses should you default on your loan resulting in a loss to the lender. LMI does not protect you as a borrower or guarantor; however a lender will not approve your loan if your application is too risky so you don’t really have a choice but to take out LMI if your lender requires it.

You usually do not choose the insurer as lenders have specific deals with one or two insurers. The lender will arrange the cover as part of their loan approval process, or in some cases have the power to approve the loan on behalf of the LMI provider which is known as a Delegated Underwriting Authority or DUA for short.

As a general rule you will have to pay the LMI premium for the lender, although there are some lenders that will pay the premium for you in return for a higher interest rate. Some lenders will always insure your loan in which case they may pay for the LMI premium if your loan is below 60% LVR (60% of the value of your property).

The main insurers that provide Lenders Mortgage Insurance are Genworth Financial and PMI, although some banks have their own LMI and others charge a risk fee and take on the risk of your loan themselves.

Will I have to pay LMI?

Although there is variation between lenders the general rule is that you will have to pay the LMI premium if you borrow over 60% LVR (60% of the property value). Some lenders will still insure the loan below 60% LVR but will not charge you the premium, while others will not insure the loan at all due to the low risk of a 60% LVR loan.

If you are borrowing between 60% and 80% LVR then you will usually have to pay the LMI premium. Some lenders will pay the LMI for you in return for a higher interest rate.

If you are borrowing over 80% LVR you will almost always have to pay the LMI premium or a risk fee.

How much will my LMI premium be?

LMI works on a sliding scale depending on the loan amount and the LVR (percentage of the property value that you are borrowing). Also it may vary because state governments charge stamp duty on insurance premiums, the amount of which varies between different states.

Some lenders LMI providers have different LMI premiums depending on if your loan is regulated or unregulated by the Uniform Consumer Credit Code (UCCC). A loan is usually unregulated if it is an investment loan or if a company is the borrower. Generally unregulated loans have higher LMI premiums than regulated loans.

Approximate LMI premiums (as a guide only!):

$300,000 loan at 80% LVR approximately 0.55% or $1,650.

$500,000 loan at 80% LVR approximately 0.79% or $3,950.

$750,000 loan at 80% LVR approximately 0.80% or $6,000.

$1,000,000 loan at 80% LVR approximately 0.98% or $9,800.

For any loan amount at 60% LVR or below there would usually be no LMI premium at all. For loans between 60% and 80% there are usually two different rates used, one for 60.01% to 70.00% LVR and another for 70.01% to 80.00% LVR.

Call us to find out which lenders have the cheapest LMI premiums! Or alternatively, use our online LMI premium calculator to find an exact premium for your situation. As you can see a small difference in the rate charged for the premiums can mean a few thousand dollars kept in your pocket!

Do all lenders have the same LMI Premiums?

No, some lenders have stricter guidelines, an exclusive deal with a LMI provider or have large enough volumes to warrant getting a discount for their customers LMI premiums. As lenders do not normally publish their LMI premium rate cards it is essential to talk to us, your mortgage broker to find out which lender to use for your loan.

Do lenders have different assessment guidelines for Low Doc Loans with LMI?

Yes, lenders have separate guidelines to that of the LMI insurers. As such if your loan is over 60% LVR and requires insurance then the loan may be approved by your lender but declined by the LMI! In some cases the LMI may approve the loan but the lender may decline it!

As a general rule lenders have relaxed guidelines for loans below 60% LVR and stricter guidelines for loans over 60% LVR. Some lenders have the power to approve loans on behalf of the LMI provider using a Delegated Underwriting Authority or DUA. In these cases the lenders use their own guidelines and can approve loans that would otherwise be declined by the LMI!

If your loan was declined by your lenders LMI provider then call us and we can find another lender for you who either has a DUA or has less restrictive LMI guidelines.

When do I have to pay my LMI premium?

You will pay the LMI premium from your loan funds at the settlement of your loan. Settlement is when your loan is advanced or when the property you are buying is transferred into your name.

You do not have to pay the LMI premium every year! It is just one fee payable when the loan is set up.

Can the Lender lend me my LMI Premium as well?

Some lenders will be able to capitalise your Low Doc LMI premium on top of the amount you are borrowing. This would mean if your loan is $300,000 and your LMI premium is $1,650 then your total loan amount would be $301,650. Some lenders such as Westpac do not capitalise LMI premiums.

What is an income declaration?

An income declaration is a form provided to the lender as proof of your income instead of the normal documents that they would need.

What is on an income declaration?

Typically an income declaration will require you to fill in your name, ABN (if applicable), loan amount, repayments and to state your income. Some lenders will also require you to confirm your assets and liabilities or net asset position.

In all cases you will have to sign on the page confirming that you believe you can afford to repay the loan.

What would I need to show to get a full doc loan instead?

For most self employed borrowers you would need to provide two years tax returns and assessments for yourself and any companies you are a director or shareholder of. Most PAYG borrowers would need to provide two recent payslips or an employment letter backed up by their latest group certificate.

Other income such as rental income can usually be verified from your tax returns, a rental statement or a letter from the managing agent.

Do I need to prove my rental income?

Some lenders require you to verify your rental income with rental statements even with a low doc loan! The majority of lenders require you to declare a breakdown of your business income and your rental income while others will only need a combined figure encompassing all the income you receive.

Will the lender ring my accountant to verify my declared income?

Most lenders do not call your accountant to verify the income you have declared. They may call your accountant to confirm that you are in business or are still trading. Some lenders will require additional information from your accountant such as a letter confirming the trading status of your businesses.

Do lenders need an accountant’s letter to verify my income?

The majority of lenders will only use your income declaration as evidence of your income. Some lenders, usually commercial lenders, will need a letter from your accountant verifying that they believe you can afford the loan repayments. This is an extra safety measure put in by lenders to stop some people making a false income declaration.

Can I just declare whatever income I need to get the loan I want?

No! Although most lenders would not question your stated income and would approve your loan, you are doing more harm than good if you lie about your income. If a lender will not approve your loan because they believe you can’t afford it then usually it is not a good idea to borrow more money! We recommend you seek financial advice to find out how much you can afford before committing to a new debt.

Can I sign a new income declaration with a higher income so the lender will approve a larger loan?

No, you only get one shot at it. If you declare an income of $50,000 and the lender declines your loan because you can’t afford it then you cannot turn around and sign a new income declaration for $100,000 and just reapply. Obviously it would be very bad practice for a lender to just approve loans without considering the possible harm they could be putting you in by allowing you to lie about your income. Other lenders may be able to consider your loan if they have not received an income declaration from you already.

As a general rule you must wait one to two years or have a good reason backed up by an accountants letter as to why you are declaring a higher income than the last application you have submitted.

What are the common reasons Low Doc Loans get declined?

The common reasons why low doc loans get declined are: the income stated is not enough to service the loan, the location of the security property, failing the lenders credit score, a poor credit history or the type of property is not suitable for a low doc loan. We have explained these in detail below.

Do lenders care if I can service the debt?

Yes! Although lenders do not require evidence of your income they will still decline your loan if the income you have declared on your income declaration form is not enough to enable them to prove you can repay your loan. It is a common misconception that because the lender has a property as security that they do not care if you can afford the loan. Repayment of the loan by selling a property is considered by lenders to be an absolute last resort due to the social damage, risk of them losing money and damage to their brand caused by a mortgagee sale.

Are Low Doc Loans only for standard residential properties?

The majority of lenders will only lend to standard residential land, houses, townhouses or units in a good condition. However there are lenders that can consider large blocks of land up to 50 hectares, serviced apartments, inner city apartments, multiple units on one title, construction loans and many more types of property as security for a low doc loan.

Are there any location restrictions for Low Doc Loans?

Yes, the vast majority of lenders are very reluctant to lend to areas that are not prime regional or metropolitan locations. As a rule of thumb if there are less than 10,000 people in a town then lenders may have restrictions on Low Doc loans in that area. If the area in which your property is located is on an island not connected to the mainland, is in a small rural town or is a hobby farm in an isolated location you are likely to have significant difficulties obtaining a low doc loan from most lenders. Many lenders assess location by the postcode which has given rise to the term postcode restrictions.

One of our lenders has no location restrictions for standard low doc loans, we recommend that you talk to us if you believe location restrictions will be applicable for your loan.

What is my credit score and what does it matter for a low doc loan?

Some lenders rely on a credit score when assessing applications while others have an experienced credit manager assess each loan on its merits. When a loan is submitted to a lender that uses a credit score the details are typed into a computer system which can then automatically assess the risk of several parts of information and give the application a score which indicates a statistical chance that the loan will go into default. The sheer size and experience of some lenders allows them to have enough data to make this statistical chance of default accurate enough to use to assess loans. As such they simply decline any loans that do not meet the credit score requirement!

Lenders do not publish what makes up their low doc credit score equations, however we expect that they assess your occupation, time at your current address, time in your business as well as details taken from your credit file with Veda Advantage.

If your credit score is the reason why your lender has declined your loan then call us and we can help submit your loan to a lender that does not use a credit scoring method of assessing loans.

Does my credit history matter?

Yes, contrary to popular belief low doc loans are usually strictly assessed and any adverse credit listings such as defaults or bankruptcy will result in your loan being declined by the major lenders. Also if you have missed payments on your loan that is being refinanced then you may be declined.

Luckily there are non bank lenders known as non conforming lenders that have a “rate for risk” approach. This allows them to approve low doc loans for people with bad credit in return for a higher interest rate, a risk fee or both.

There are large variations in the way that these loans are assessed. We recommend that you talk to us to find out which lender is most suitable for you.

Will my lender need to see statements for all my debts?

Most lenders need to see at least one statement for all your debts when assessing a low doc loan. When refinancing all lenders need to see at least three and usually six months statements for the mortgage being refinanced and at least one statement for any debts being consolidated. Some lenders do not need to see any statements for a purchase, and for a refinance only need to see the statements for your home loan being refinanced.

We can help you find a lender that will keep the paperwork to a minimum, talk to us for the details.

Do I have to pay an application fee or valuation fee?

This will vary between the lenders. With modern professional package low doc loans, fees such as valuation fees and application fees can be waived! With many major lenders the fees will be waived or the fee will be payable when the loan is advanced, not when the loan is applied for.

Other lenders such as non conforming low doc lenders tend to charge the cost of the valuation up front. If the set up cost of the loan is important to you then talk to us to find out which lenders will charge less fees up front.

Will my lender charge a higher interest rate?

Some lenders charge a premium on their interest rate for low doc loans or will not give as large a professional package rate discount. We have lenders on our panel which have the same professional package rate discounts for both full doc and low doc loans!

Which Low Doc Loan has the best interest rate?

Lenders are always issuing special offers and have discounts that are not published on their websites. Talk to us and we can advise you as to which loan is most suitable for your situation.

Believe it or not the lender with the cheapest interest rate is not always the best lender for you! Often a lender will give a rate discount but then charge a higher fee to compensate.

Our approach is to present you with several competitive options and allow you to choose which you would prefer.

Which Low Doc Lender has the lowest LMI premiums?

Because LMI premiums vary depending on the loan amount, LVR (amount you are borrowing as a percentage of the property value) and purpose of the loan there is no “best lender” for LMI premiums. The lender that is best for owner occupied loans under $300,000 may be terrible for loans of $1,000,000!

We usually ask you to provide your full details then calculate each lenders LMI premium, fees and interest rates before returning to you with several options. Or alternatively, use our online LMI premium calculator to find an exact premium for your situation.

Are exit fees higher with Low Doc Loans?

For the majority of major lenders you will not pay a higher exit fee than you would have with a full doc loan. Exit fees are usually comprised of a Deferred Establishment Fee (DEF), Discharge fee and possibly Break fees for fixed rate loans. So be sure to ask your mortgage broker for each fee so you know the true cost of exiting a loan!

Non conforming lenders tend to have higher exit fees, however this is usually for all their loans, not just their low doc loans! If exit fees are important to you then talk to us to find out which lender is the most suitable to you.