A few questions about low doc loans

Any general questions you might have in regards to loans and finance.
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chrishardy
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Joined: Wed Jun 17, 2009 4:09 pm

A few questions about low doc loans

Post by chrishardy »

Hey guys, I am finally ready to apply for a home loan but I have a few questions regarding it.

What documents will I need to submit?
What is the difference between a low doc and a full doc?
What is the difference between a low doc and a no doc?
What determines if I have to pay LMI or not?
What is the maximum that I can borrow?

FYI I will be applying for a low doc loan since I am self-employed (an accountant friend suggested that this is the best option).

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Otto Dargan
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Re: A few questions about low doc loans

Post by Otto Dargan »

Hi and welcome to the forums chrishardy,

Regarding your questions about low doc loans:
  1. You can submit an income declaration form along with a BAS, business bank account statements or a letter from an accountant.
  2. The main difference between a full doc loan and a low doc loan is that you can submit lesser proof of income and still get approved for a low doc home loan.
  3. The main difference between a low doc loan and a no doc loan is that for a no doc home loan the only income verification needed is an income declaration.
  4. For a low doc loan you will usually have to pay LMI when your loan is over 60% LVR, i.e. 60% of the property value.
  5. The maximum you can borrow is usually 90% LVR.
Cheers,
Otto
Otto Dargan
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chrishardy
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Joined: Wed Jun 17, 2009 4:09 pm

Re: A few questions about low doc loans

Post by chrishardy »

Hi, thanks for answering, but about the loan amount, I also wanted to know exactly how much I could borrow, as in the amount – e.g. 500k? 800k? etc.

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Otto Dargan
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Re: A few questions about low doc loans

Post by Otto Dargan »

Hi chrishardy,

If you are borrowing up to 60% LVR then the lenders will not set a maximum loan amount for you. That means that you could easily borrow up large amount such as $2,000,000 without any trouble.

If you are borrowing up to 80% LVR then your loan amount could be restricted to $1,000,000.

I hope this clears up your doubts.

Cheers,
Otto
Otto Dargan
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P | 1300 889 743
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chrishardy
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Re: A few questions about low doc loans

Post by chrishardy »

Thanks, yes, that’s what I wanted to know but I also have to add, is low doc the best option for me?

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Otto Dargan
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Re: A few questions about low doc loans

Post by Otto Dargan »

chrishardy, the reason why self-employed people go for low doc loans is because it is harder for them to provide the income evidence required for a full doc home loan – in which case you would need to provide your personal tax returns, notices of assessments, business tax returns and your business’ financial statements, all from the last two years.

In some cases the borrowers have been in business for less than two years which means that they cannot provide the above documents.

A low doc loan is much easier for a self-employed borrower because they will usually have their BAS, business account statements or an accountant’s declaration with them.

Cheers,
Otto
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alexjong
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Joined: Wed Jun 17, 2009 5:21 pm

Re: A few questions about low doc loans

Post by alexjong »

Hi

I run my own bakery and have been doing well enough to think about buying a house. The business has been going on for about 18 months now and it’s doing much better than I had planned.

If I do apply for a low doc home loan what are the criteria if I want to submit my business’ bank statements?

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Otto Dargan
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Re: A few questions about low doc loans

Post by Otto Dargan »

Hi alexjong,

For a low doc loan with business bank statements you would need to:
  • Be self-employed
  • Be ABN registered for 12 months
  • Be GST registered for 6 months
  • Provide statements from the last 3 to 6 months (depends on the lender)
  • Be borrowing less than 80% of the property value
  • Have a clear credit history (some minor credit issues can be ignored)
  • Be buying a property which is located in a good location
  • Be buying a property which is in good condition
Please keep in mind that this is only possible with specialist lenders as major banks will not accept this form of income verification.

You can also try applying if you have BAS as long as:
  • You have been ABN and GST registered for two years (one lender can consider up to one year)
  • You can submit BAS from the last 12 months (some lenders can accept 1 or 2 as well)
  • Your credit history is clear of any adverse issues
  • You have been paying all of your debts on time
  • You are borrowing less than 80% of the property value or less than $1,000,000, whichever is lesser
  • You have saved up 5% of the property value in genuine savings (if you are borrowing over 60% of the property value)
Finally you can also submit an accountant’s letter as proof of your income for which the letter should contain the following information:
  • How long the accountant has worked on behalf of the borrower
  • That the current financials are not available but an estimate has been created using the client’s current circumstances and it is not an unreasonable figure
  • The taxable income the borrower is earning
  • A disclaimer
  • The accountant’s full details including their ABN, address and phone number
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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