Low Doc Glossary
Short for Assets and Liabilities Statement, your A&L is a summary of every asset you own and every loan you have outstanding as well as any loans that you are a guarantor for.
Assets includes your home, investment properties, furniture, your car, shares, cash and anything else you own that is valuable.
Liabilities include home and investment loans, tax debt, personal loans, car loans, and credit cards. Importantly, lenders require that you include the details of all of your credit cards, even if they are not used or have nothing owing.
Australian Business Number
Your ABN is the number used when dealing with the Australian Taxation Office (ATO). It is an eleven digit number in the format 12 345 678 910.
When applying for a low doc loan you may need to provide an ABN as proof that you are self employed.
A letter from your accountant confirming particular aspects of your financial position.
Lenders may ask for further proof of what you have told them. This may include confirming your income (for some types of low doc loans), the trading status of your companies or that you do not have an ABN but have been self employed at least two years.
Your credit history is made up of both your Equifax (previously Veda Advantage) credit file, your history of repaying loans with the lender you are applying for as well as the repayment conduct on your current loans. Lenders will assess all three areas to form a complete picture of your financial history.
Statistically speaking, people who have bad credit histories are more likely to default on a loan. If you have a bad credit history, there are specialist low doc lenders called non-conforming lenders that can help you.
A credit file (also known as a credit report) is the actual report provided by Equifax to lenders when you apply for a loan.
It contains personal information such as your name, date of birth, drivers licence number, previous addresses and previous employers.
It will also contain information about loans you have applied for (called enquiries), loans you have defaulted on (defaults), court writs, court judgments and bankruptcy.
Some lenders use a credit score to assess loan applications. All your information, including your credit history, is entered into a system which automatically assesses the overall risk of your situation based on current credit policies and the performance of past loans that were similar to yours.
The score provided by the system must be above a particular threshold set by the lender for the loan to be approved.
Find out how the banks determine your credit score using our free online calculator
The term Easy doc is used by BankWest and BMC for their low doc loans.
Financial statements are usually prepared by a business’s accountant at the end of the financial year and include the profit and loss (statement of financial performance) and balance sheet (statement of financial position).
Financial statements are used by lenders to assess the income of a business and to confirm the Assets and Liabilities Statement provided by the customer. Low doc loans do not require financial statements.
The Goods & Services Tax, currently at 10%.
You are required to have your business registered for GST if your turnover is over $75,000 per annum. Businesses that are not GST registered do not have to collect and pay GST to the government.
A one page form provided to the lender when applying for a low doc loan. The income declaration usually asks you to state your income for the lender to use in their serviceability assessment.
It may also ask you to confirm that you can afford the loan and to state your assets and liabilities or your net asset position.
The term Lite doc is used by La Trobe Home Loans, Better Mortgage Management and Banksia Financial Group for their low doc loans.
Lenders mortgage insurance (LMI)
LMI is insurance for a lender to protect them in the event that a borrower defaults on a loan.
The risk associated with the loan is passed onto the insurer allowing the lender to lend a higher percentage of the property value.
Most lenders can only lend 80% of the property value (60% for low doc loans) without LMI. With LMI these lenders can approve loans up to 95% (80% for low doc loans). Usually the borrower pays the LMI premium for the lender.
The term Lo doc is used by Adelaide Bank, ING, ANZ, Onyx, HSBC and Homeloans Ltd for their low doc loans.
Short for low documentation, a low doc is a home or investment loan that has reduced income evidence requirements.
A low doc declaration or income declaration is provided as proof of your income instead of documents such as tax returns. Most lenders will lend up to 60% of the value or your home, or 80% with LMI.
Short for Loan to Value Ratio. This is the amount you are borrowing divided by the lesser of the purchase price or valuation multiplied by 100.
For example if you have a house valued at $1,000,000 and borrow $800,000 then your loans would have an 80% LVR. LVR is used by home loan lenders as part of their risk assessment. The higher the LVR the higher the risk.
60% LVR is the cut off point for most lenders’ low doc loans. The majority of lenders will not require LMI for loans below 60% LVR.
Loans with an LVR below 60% are widely considered to be very safe so may also have relaxed credit assessment such as no valuation policies or the ability to approve loans for people with credit problems.
80% LVR is the maximum loan amount for most lenders’ low doc loans with LMI. Tighter credit assessment may apply as the lender and the LMI provider would both have to approve the loan.
Some lenders will allow you to capitalise the LMI premium on top of the loan amount up to 82% LVR.
No doc loans require no proof of income whereas low doc loans require reduced proof of income. The lender’s no doc declaration form will not require that you state your income or assets and liabilities.
Most major no doc lenders will not lend more than 70% of the property value (70% LVR) and will require the loan to be NCCP unregulated.
Notice of assessment
A letter issued by the ATO notifying you of your tax payable or your tax refund as assessed by the ATO. This is usually issued to you within two weeks of you lodging your tax returns. Also known as a Tax Assessment, they are not required for low doc loans.
Self certified income
This is the income you declare to your lender on the low doc declaration or income declaration form. Normally your self certified income is enough for lenders to approve your low doc loan without further proof of your income.
People who are employed by their own business. For lending purposes, anyone who has another job as well as their own business is not always considered to be self employed!
Self employed people must be reliant on their businesses income to service their loan to be assessed as self employed by most lenders. Other lenders have policies that consider anyone with over 25% of their income from a business to be self employed.
Your tax return is the official form you lodge with the tax office for them to assess your tax debt or tax refund for the year. Lenders use your tax returns as proof of your income.
Tax returns are not required for a low doc loan as you use other documents to provide some form of reduced income verification.