Yes, low doc loans are still available, and some of our low doc lenders are still accepting one or two forms of income verification either in the form of an:
- An accountants’ declaration/letter;
- Business activity statements (BAS);
- Business bank statements (BBS); or an
- Alternate method of income verification.
Self-employed borrowers have the option to:
- Verify their income with 1 or 2 forms of income verification.
- Ability to payout unlimited debts, with defaults, late payments, CCR issues (repayment history) and discharge bankruptcy.
- Cash-out (verified) for business use or tax debt with a low doc loan.
However, in light of the COVID-19 pandemic, and its economic fallout, lenders across the board are adjusting their credit policies, interest rates and their general credit appetite.
What are the changes in lending policies for low doc loans?
Here are some of the lending policy changes announced so far by low doc lenders:
- There’s been a reduction in the maximum loan size for low doc loans. For example, one lender will only do up to $850,000, whereas others are limiting the maximum loan size to $1 million per security and a maximum of $2 million per customer.
- A limit on the maximum loan to value ratio (LVR) for low doc loans. For example, several lenders have dropped their max LVR from 85% to 80% or even 75%.
- The loan servicing ratio with some lenders has increased, in other words, your borrowing power has decreased. E.g, one lender has increased its Net Surplus Ratio (NSR) to 1.25%. An NSR calculation is typically done as follows: (After Tax Monthly Income – Total Monthly Living Expenses) / Total Monthly Commitments (New and Existing debts).
- Some lenders have additional document requirement such as 30 days Business Banking Statement (BBS), 72 hours before settlement to confirm no downturn in revenue.
- Business ABN. Even during normal times most lenders want to see your business ABN registered for two or more years. We do however have access to lenders who will consider shorter timeframes. Like all loan applications it can be about the overall strength of the application.
Generally, low doc lenders are asking more questions regarding how COVID-19 has affected your business. This can be in the form of a COVID-19 Statement, which outlines if and how you’ve been affected by COVID 19, and if not why.
Overall, lenders are closely looking at servicing capacity, availability of liquid assets, and industries/business that has been negatively impacted by COVID-19.
There are a lot of grey areas.
Low doc lender policies are constantly changing, so please get in touch with one of our specialist mortgage brokers before submitting an application. Call us on 1300 889 743 or fill in our short no-obligation enquiry form to discuss your options.
COVID-19 affected industries
Lenders have identified several industries as being the most impacted amidst the coronavirus pandemic, and are knocking back applications from borrowers from those industries.
These industries include but are not limited to:
- Retail (not essential services)
- Air BnB/ Uber
- Project Manager/IT etc.
Strong borrowers in a strong business position from these industries may be considered on a case by case basis.
COVID-19 Statement: How has COVID-19 affected your business?
An important consideration for self-employed borrowers looking to apply for a low doc loan is the additional questions being asked by lenders either through an additional form or through additional notes.
Questions that low doc lenders are some variation of the following:
- An impact statement in relation to any effect of the COVID-19 (Coronavirus) on your business.
- What contingency plans do you have?
- How will you manage existing fixed business costs from your current cash flow?
- What level of cash reserves do you have to meet wages and loan repayments?
Alternatively, in lieu of the above, a 6-12 month business plan from you that demonstrates how you’ll manage the business through this period and into recovery is accepted by some lenders.
Regardless, it is better to submit detailed notes along with strong mitigants to make your loan application as solid as it can be. This will, in turn, ease the lenders’ concerns and increase your chances of approval.
What to write in a COVID-19 statement?
COVID-19 Impact Statement example: Sole Trader working in IT support
“We’ve discussed the continuity of his business in detail, and whether or not, sales are likely to be impacted by any further restriction to be imposed by the government.
The customer has advised he is operating IT support and has ongoing contracts with a few medium-sized accounting firms, hence income is not likely to be impacted.
Moreover, there are sufficient cash reserves to meet wages, operating costs, and loan repayments for the next 6 months.
In conclusion, given his cashflow projections/ accountants’ declaration, the customer is well-positioned to weather this downturn.”
Tip: Always provide an explanation (mitigants) for when your income is going downward.
Tips to get approved for a low doc loan amidst COVID-19
Here are some tips to help you get approved:
- Find the right lender. Most lenders require that you have a minimum of a 20% deposit and that you have an ABN to prove that you have been self employed for the last two years. But this isn’t the case with all lenders. Applying with the right low doc lender is key to approval.
- Create a detailed COVID-19 impact statement and a business continuity plan. Seek advice from your accountant and a mortgage broker.
- Don’t just look at the interest rate. Consider the risk fee or lack thereof.
- Consider them as short term temporary loans. You want to switch to a full doc loan or a standard home loan as soon as you’re able to do so.
Can you broker access the right lender for you?
We have access to almost 40 lenders on our panel; as a matter of fact, we work with lenders that some of our competitors haven’t even heard of.
So, to find out which low doc lender has the right loan for your circumstances by talking with one of our award-winning specialist mortgage brokers. You can call us on 1300 889 743 or fill in our short assessment form.