Low Doc Loans

What Are Low-Doc Home Loans?

What do I need to look out for?

Low doc loans are a higher risk to financial institutions, so they tend to place more significant restrictions on this type of loan.

There are very few lenders that offer low doc solutions, while others have significantly increased the interest rates they are applying.

We’ve outlined a list of potential issues to look out for:

• Higher interest rates: This will mainly depend on the lender and the type of verification or supporting documentation you can provide. Some of our lenders offer the same low rates as they do for full documentation home loans.
• Larger deposit: 20% of the purchase price is typically required, although some lenders require less.
• LMI: Mortgage insurance is usually applicable if you borrow over 60% Loan-to-Value Ratio (LVR).

Don’t get caught out by these potential restrictions.

Speak to one of our specialist mortgage brokers by calling 1300 889 743 or enquiring online.

How do I get approved for a low doc mortgage?

Getting approval for your loan isn’t as easy as it used to be.

We use the following three-step process to help you to find a lender:

1. Find out which documents you can provide, what your needs are and which lenders you can qualify with.
2. Select the lender with the lowest interest rate, fees and LMI premium, as well as the loan features that you require.
3. Present your application in a way to make sure it is seen favourably by the lender.

Did you know that if you provide partial proof of your income (e.g. an old tax return) that some lenders are now required to ask you for full financial statements and tax returns for all entities?

Pro-tip: A lender cannot ignore a document he sees when completing their assessment. To avoid this issue, only provide the documents requested by the lender, nothing more!

Features Of Low-Doc Home Loans

Low-doc home loans have flexible terms tailored to non-conventional borrowers. Low-doc home loans are particularly helpful for self-employed individuals or business owners who struggle to provide traditional income verification documents.

Here are some key features and conditions:

• Flexible income verification: Instead of traditional payslips and tax returns, lenders typically accept alternative documents like business activity statements (BAS), bank statements, and accountant letters.
• Higher interest rates: Due to the perceived higher risk, low-doc loans often have higher interest rates than standard home loans.
• Lower Loan-to-Value Ratio (LVR): Lenders might impose a lower LVR for low-doc loans, requiring a larger deposit.
• Limited loan features: Some features, such as offset accounts, redraw facilities, and fixed interest rates, might be restricted or unavailable.
• Additional fees: Some lenders may charge higher fees for low-doc loans.

Eligibility Criteria For Low-Doc Home Loans

To qualify for a low-doc home loan, borrowers still usually need to demonstrate a steady income, albeit with less documentation than traditional loans require. The typical requirements for low-doc home loans are:

• Generally, the borrower must be self-employed in the same industry for at least a year.
  • We have lenders on our panel that consider self-employment for at least six months if there is prior employment in the same industry for at least 12 months.
  • More competitive products may require the borrower to be self-employed for at least 24 months.
• Your ABN must be active or GST registered for at least six months, though some lenders will accept only a minimum of one year or two years.
• Alternatives to traditional income verification, such as BAS, business bank statements, and accountant letters, are generally accepted.
• Lenders require 6-12 months of BAS.
• For low-doc refinancing, borrowers will need a credit file without dishonours or arrears in the last three months to be considered.

Different lenders have varying policies. The maximum LVR without LMI is determined case by case, depending on the strength of the application.

What Documents Do I Need To Provide?

You must provide supporting documents to verify your declared income. Each lender has specific requirements and will accept different document types to prove your income.

The main documents that can be used to verify your income are:

• 6- to 12-month BAS statement showing a high turnover.
• An accountant letter verifying your income (sometimes lenders might call the accountant to verify the letter).
• Business bank statements showing a high turnover.
• Interim financial statements.
  • We have a lender that can consider low-doc applications based solely on interim financial statements, depending on the overall strength of your application.
• Verification of ABN registration.

Under the National Consumer Credit Protection Act (NCCP) Act, lenders require you to provide income verification before approving your home loan.

Before applying, it’s advisable to let an experienced mortgage broker review your case and documents to ensure a smooth application process.

Please call us on 1300 889 743 or enquire online, for free, for more information.

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Who Should Consider Applying For A Low-Doc Loan And Why?

• Self-Employed Individuals: Those who run their own businesses often do not have the standard documentation traditional lenders require, such as 1-2 years of tax returns. Low-doc loans allow them to provide alternative income verification, making homeownership more accessible.
• Freelancers and Contractors: Individuals with fluctuating incomes or those who work on short-term contracts may find it difficult to provide consistent income documentation. Low-doc loans offer a way to secure financing without the need for extensive paperwork.
• Investors: Property investors who rely on rental income or have multiple income streams may benefit from low-doc loans, as these loans can accommodate various forms of income verification.

Pros and Cons of Low-Doc Home Loans

The pros of low-doc home loans are:

• Accessibility for self-employed and non-traditional earners
• Flexible documentation requirements
• Potentially faster approval process

The cons of low-doc home loans are:

• Higher interest rates than full-documentation loans
• May require a larger deposit (typically 20%)
• Limited lender options
• Lenders Mortgage Insurance is usually required if you borrow at over 70% LVR