Low doc home loans are for borrowers who are self employed or unable to prove their income through traditional means.
This is the only way that you can borrow without recent tax returns or financial statements.
You may have already found that choosing the right low doc home loan can be difficult as lenders have different requirements and interest rates.
Our popular articles on low doc loans
Is a low doc loan suitable for me?
There are other ways to prove your business income.
Your accountant can verify your income.
How do banks calculate my income?
Can my bank statements prove my income?
Are you eligible for a low doc?
Which lenders offer low doc loans?
Are they still available?
We’ve compared rates for you!
Choosing a loan
Is there anything I should watch out for?
Low doc loans are a higher risk to financial institutions so they tend to place greater restrictions on this type of loan.
As it stands, there are very few lenders that offer low doc solutions while others have significantly increased the interest rates they are applying.
Below is a list of potential issues to look out for:
- Higher interest rates: This will mainly depend on the lender and what sort of verification or supporting documentation that you are able to 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 normally required although some lenders require less.
- LMI: Mortgage insurance is normally applicable if you borrow over 60% LVR (60% of the property value).
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:
- Find out which documents you can provide, what your needs are and which lenders you can qualify with.
- Select the lender with the lowest interest rate, fees and LMI premium, as well as the loan features that you require.
- 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?
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!
Apply for a low doc home loan today!
Which lender has the lowest interest rates? Which has the lowest LMI premium for their low doc loans? Which lenders do you qualify with?
Our mortgage brokers specialise in low doc mortgages. They can quickly assess your situation and get back to you with the best options.
Please call us on 1300 889 743 or enquire online to go through your situation with an expert.
Do I need to prove my income?
For modern day low doc loans, you are required to provide supporting documents to verify the income that you have declared to the lender.
Each lender has their own requirements and will accept different document types to prove your income.
The main documents that can be used to verify your income are:
- 12 months’ BAS statements showing a high turnover.
- An accountant’s letter verifying your income.
- Business bank statements showing a high turnover.
- Old tax returns (over 24 months).
- Interim financial statements.
Under the National Consumer Credit Protection Act (NCCP) Act lenders are required to have some kind of income verification from you before they can approve your mortgage.
If you can’t provide one of these documents then it is unlikely that you can get approval for a low doc loan. However, you may qualify for a no doc loan.
Please call us on 1300 889 743 or enquire online for more information.
Accountant’s letter versus accountant’s declaration
An accountant’s letter is on the accountant’s letterhead and is signed and dated by the accountant and may have a disclaimer.
An accountant’s declaration is a form you get from the lender and has figures that need to be completed by your accountant.
Which is most suitable for you depends on what your accountant is willing to sign.
Each lender has their own requirement and their own acceptable format.
Some require a declared income from the accountant whereas others just need confirmation that you can afford the mortgage repayments.
Some lenders require the accountant to state your income in your tax return for the last financial year, which means it isn’t really a low doc loan.
Some lenders will not allow a disclaimer to be added by the accountant.
The goal is to go with a lender that has a method that your accountant is comfortable with and that has great pricing and policy.
Loan to value ratio (LVR)
Most lenders will accept loans for up to 60% of the value of your property (60% LVR). Some will consider lending up to 80% LVR. One of our lenders will consider a 90% low doc loan.
The higher the percentage of your property value that you are borrowing, the higher your interest rates and fees will be.
Length of ABN / GST registration
The majority of lenders require you to have an ABN that has been GST registered for two years but this varies between lenders.
One of our lenders will accept someone who has had an ABN for just one day. This is usually for start up businesses.
Reasonable income for age and occupation
Does the declared income make sense? For example, an 18 year old apprentice would be declined if they declared an income of $200,000.
The banks are still required to meet responsible lending legislation and so they will take a common sense approach to your declared occupation and income.
Asset to income ratio
Borrowers should have a good asset to income ratio. One of our lenders likes to see that you have a net asset position that is equal to two times your annual gross income.
For example, if you earn $100,000 a year then you would be expected to have around $200,000 in net assets.
This is a very strict policy for younger applicants and is a little lenient for older borrowers.
For this reason, we usually help young people to apply with a lender that does not have this policy.
Lenders look particularly closely at your credit file and the repayment history of your debts because they cannot fully verify your income.
The major banks are far less forgiving of any problems with your credit history.
We do have options with some of our specialist lenders if you have a bad credit history.
Please enquire online or call us on 1300 889 743 to discuss your situation with one of our brokers.
Lenders prefer prime security properties in high demand locations like capital cities or regional centres. Properties that are unique, in disrepair or difficult to sell are not accepted by many lenders.
You can refer to our list of low doc property types for more information.
Most lenders prefer low doc borrowers with total debts under $1 million.
A few select lenders allow loans of up to $2.5m per borrower group (e.g. a husband and wife’s total borrowings together).
On a case by case basis we can help investors to borrow more than $2.5m with some of our lenders but they would need to have significant assets and be borrowing a low percentage of the property value.
Lenders normally require proof of how the loan funds will be used if any money is released directly to the borrower.
Lenders are concerned that the borrower may not actually have an income and is using the money to make the repayments or that equity is being released to be used as a deposit to buy further properties.
Some lenders will not refinance an existing low document home loan or existing investment loan but will allow you to purchase a property with a low doc loan.
Refinances are known to be a higher risk than loans used to purchase a property.
Unfortunately, many people are caught out by this if they buy vacant land and then later refinance when they decide to build.
What is a low doc loan?
Learn the low doc mortgage basics
Certain types of low doc loans are much more difficult to obtain than others including loans to refinance existing mortgages or home loans without BAS statements to back up declared income.
- What is a low doc loan?: Find out the basics of borrowing money without proving your income.
- No BAS low doc loans: Many lenders now require BAS statements to prove your income but there are lenders out there that don’t have this requirement! Find out which lenders can help.
- Home loans with no payslips: Many people have PAYG (pay as you go) jobs but cannot prove their income with payslips. There are alternatives to a standard loan that allow you to borrow without evidence of your income.
- Low doc refinance: Are you stuck on a high rate low doc loan? Although many lenders will not approve refinance, there are still some that are willing to consider these applications.
- Low Doc Calculator: Do you qualify for a low documentation home loan? This calculator will tell you!
How has low doc lending changed?
In the past, you would have been able to obtain a self-certified low doc home loan and, if you had an ABN that had been registered for over two years, it was easy to get approved for a low doc loan.
However, after the Global Financial Crisis (GFC) and introduction of the NCCP Act by the Australian Government, the banks have tightened their lending criteria.
This means that the banks now require proof of income, and in particular, several types of home loans are now very difficult to finance:
- Low doc Loans for companies and trusts.
- Equity releases, known in the industry as “cash out” loans.
- Construction loans.
- Refinances, particularly existing low doc loans or loans from non-conforming lenders.
- Asset lends / no doc home loans.
- Applicants with a bad credit history.
However, we do have lenders that can assist with most of the above loan types.
Please enquire online or call 1300 889 743 to discuss your situation with one of our mortgage brokers.
How many low doc lenders are left?
RAMS accountant’s declaration product was the leading low doc loan product on the market until they stopped low doc loans in April 2019.
The interest rate was really sharp for a low doc offer and the policy was quite flexible.
Luckily, there are some other specialist lenders that have stepped in to fill the space RAMS left behind.
Some of these lenders operate exclusively via third party channels like mortgage brokers, not directly with the general public.
Which loan features are available?
You can get almost all of the normal home loan features with your low doc loan:
- Interest only.
- Extra repayments.
- 100% offset.
- Line of credit.
- Fixed interest rates.
- Split loans (multiple loan accounts).
The following are generally not available with a low doc mortgage:
- Third party guarantees (e.g. parents guaranteeing your loan)
- Introductory interest rates
- Repayment breaks
- In some instances, security substitution
In most cases, you would need to lodge a new application so that the lender’s credit department could review your situation at the time that a repayment break or new security property was required.
Who can benefit from a low documentation loan?
Low doc home loans are designed to assist those who have a deposit saved or who have existing equity in a property but are self employed and have difficultly showing proof of their income.
In particular, business owners like sole traders, people in partnerships, or company owners who cannot provide full financials due to complications in their business structure.
Similarly, businesses that have grown significantly in the most recent financial year compared to the previous financial year, hence, their current income evidence does not reflect their actual earnings.
They can also be of use to professional investors, people with fluctuating incomes or people who have had a low income in the last financial year.
A low doc loan may be the best fit for the self employed as minimal documentation is required to qualify for this type of loan.
You may be able to borrow up to 80% LVR (80% of the property value) by providing alternative income verification documents such as financial statements, business bank statements, BAS statements or an accountant’s letter.
Should I provide full financials if I can?
Generally speaking, if you can provide up-to-date business income evidence, you should.
The reason is that it drastically increases your chances of approval and your opportunity to qualify for a much sharper interest rate than the rates usually applied to low doc mortgages.
The purpose of a low doc solution is to more accurately demonstrate your actual business earnings.
You cannot present misleading financial information for the purposes of home loan approval and we will not assist you to do so.
When can I refinance from low doc to full doc?
You can refinance out of your current low loc loan when you owe less than 80% of the property value on your mortgage, you are outside of a fixed term and you can provide the following business financials:
- Two years personal tax returns.
- Two years personal tax assessment notices.
- Two years company/partnership/trust tax returns.
- Two years financial statements (if available).