No Doc Loans
There are no longer any mainstream lenders in Australia offering No Doc Loans over 60% of the property value. You will pay a high interest rate for loans over 60% of the property value.
What is a No Doc Loan?
A no doc loan is similar to a low doc loan in that no tax returns or proof of income is required to get your loan approved. However unlike a low doc loan you do not have to disclose your assets and liabilities to the lender and you do not need to state your income for them to use to assess your loan!
Instead you will sign an affordability statement which confirms that you understand the amount of the repayments and that you can afford the debt. You may also be required to sign an investment or business purpose declaration to prove to the lender that you are using the loan for investment purposes. No doc loans are generally unavailable for owner occupied or personal purposes.
As you can see, no docs loans are a very simple, hassle free way to borrow money!
How much can I borrow with a No Doc?
Through major lenders you can borrow up to 60% LVR (60% of the property value) to a maximum of $1,000,000. Private lenders are more flexible and can often lend up to 80% of the property value.
Why do they call it an Asset Lend?
No docs are often called Asset Lends because the lender is relying almost entirely on the value of your property being higher than the amount of your loan. They are not looking at your income or other indicators that can help them decide if your loan should be approved or not. Only private no doc loans are true asset lends, the major lenders still do some credit assessment when approving your loan.
No Docs from major lenders
The four major banks do not offer no doc loans however some smaller banks, international banks and non-bank lenders have competitive no doc offers. Lenders Mortgage Insurance (LMI) doesn’t apply for No Doc Loans so lenders usually charge a 1% to 2% application fee to cover their risk and processing fees. Typically the major lenders will not lend more than 60% of the value of your property however there have been one or two that have considered lending slightly more in return for a higher interest rate.
The lender will still do some credit assessment such as checking your credit history or the repayment history of your current loans. Some lenders will require proof that you have a registered ABN however most will not care how long it has been registered for. Because these lenders are not just handing out money to anyone, their interest rates are cheaper than those of private lenders, however you can still expect to pay more for a no doc than you would for a low doc or fully verified loan.
Private No Doc Loans
There are several hundred private lenders that fund no doc loans. The lenders are diverse, ranging from individuals with large sums of money to mortgage funds and even institutional investors. Most of them operate through a specialist mortgage broker or non-bank lender that matches borrowers with lenders for a fee from the customer. Your mortgage broker will charge you a fee to arrange your loan because most private lenders will not pay them commissions.
Private lenders are far more expensive than the major lenders in Australia. You can expect the interest rate to be anything from 2% to 6% per month! That’s up to 72% p.a.! Lenders will usually require that a valuation be paid for up front and that you establish how you will repay the loan, either from the sale of a property or by refinancing to a prime lender. Private no docs are not normally designed to be long term loans but are instead used for one to six months.
The advantage of private no docs are that they can be funded in as little as 48 hrs, they do not require a credit check or other loan assessment and can sit behind your bank loan as a 2nd mortgage or caveat. In other words if you have a large mortgage and only need an extra $30,000 you often do not need to refinance the entire loan to a higher rate but can instead just pay the higher rate on the extra amount you are borrowing.
If you are considering obtaining a private no doc loan we strongly recommend that you use it only as a last resort and that you obtain legal and financial advice before signing the private loan agreement. We will always look for a way to get you a loan with a major bank before finding you a private lender.
Why do lenders prefer investment or business purpose loans?
Loans used for owner occupied, household or domestic purposes such as buying a home, refinancing a home loan or going on a holiday are regulated by a code known as the Uniform Consumer Credit Code or UCCC for short. This code is designed to protect borrowers who may not be financially sophisticated enough to understand what they are doing. We fully support the UCCC as it holds lenders accountable for bad practices and predatory lending. No doc loans are thought to breach this code because the lender is lending money to someone without knowing if they are able to pay it back.
Investment and business loans are not covered by the UCCC as the government decided that the types of borrowers who apply for them are sophisticated enough to understand what they are doing. Since 1996, when the UCCC was introduced, the number of families investing has increased and so this decision may need to be reviewed. However, because investment loans are not covered by the UCCC, there are different restrictions on lenders, thus doc loans are more readily available.
Why do they still need some documents?
All lenders will need to identify you as part of their lending due diligence. In addition to this, major lenders will ask you for statements for your current loan so that they can check if your repayments have been on time. Private lenders often do not need many documents other than an ID! The more documents you can provide, the better your rate will be.
How can I get a No Doc Loan?
Our expert brokers can help you obtain competitive no doc loans through our panel of major lenders and can also arrange a private loan if you cannot obtain a loan any other way. Please give us a call at 1300 889 743 or enquire online and we will find the right lender for you!