A low doc (or low documentation) home loan is a type of home loan that can be approved without the normal income verification requirements.
What this usually means is that you sign an income declaration and your bank will accept this as proof of your income without the need to see your tax returns and other financials.
Home loan or investment loan?
If you are using your loan to buy a home to live in or to refinance a loan that was originally used to purchase a property then your loan is known as a home loan.
For most lenders, loans for any other domestic or household purposes are considered to be Home Loans.
Investment loans are used for business or investment purposes. The interest rate should be the same for either purpose.
What are the acceptable purposes of a home loan?
You can use a low doc home loan for pretty much anything household or domestic related. In fact, most lenders really don’t care what you use the money for, as long as it isn’t business related, repaying tax debt or for anything illegal.
You can use a low doc home loan for building a new home, renovating your home, buying a new home, upgrading from one home to another or consolidating your debts.
To find out if you are eligible for a low doc home loan, talk to one of our mortgage brokers and enquire online or call us on 1300 889 743.
It’s all about the loan purpose…
Did you know that back in 2003 most lenders wouldn’t give you a low doc home loan? In other words low doc loans could ONLY be used for investing!
The reason for this was that investment loans are not covered under the government’s Uniform Consumer Credit Code (UCCC) and so lenders had less qualms about lending money without definitive proof that the loan could be repaid.
So what has changed? Some lenders sought additional legal advice and found out that a signed income declaration is a type of income verification so shouldn’t be in breach of the UCCC. Ever since then more and more lenders have opened their doors to low doc home loans being used for domestic or personal purposes.
In 2010 the NCCP act was introduced which further changed the rules for low doc home loans. Home loans are regulated under the act, however so are loans for investment in residential property.
Business loans and loans for investment in shares are still unregulated.
ASIC also requires that lenders obtain some limited form of income evidence for all low doc loans that are regulated.
What do low doc lenders look for?
The vast majority of low doc lenders have similar lending guidelines. Ideally you would be self employed for at least one year and have a GST registered ABN that is also at least two years old. Your asset position should make sense when looking at your declared income and age. Obviously an 18 year old declaring an income of $500,000 p.a. will arouse suspicion!
If you are buying a home then ideally your deposit should have been saved over time; some lenders will not approve your loan if your deposit is a gift or borrowed from elsewhere. This is of particular importance if you are a first home buyer!
Savings is important for anyone buying their first home because it shows the bank that they can be disciplined with their money. Most importantly the majority of lenders will not let the home loan exceed 80% LVR, that’s 80% of the value of the property, so a good deposit will come in handy.
What if you don’t meet the lender guidelines for a low doc home loan? Then you need to talk to another lender! That’s what we are here for and it’s also why we have over forty lenders on our panel, each with their own rules.
What are the low doc home loan interest rates?
You can find these in our low doc interest rates section. Be careful when choosing a low doc loan as you will need to take the cost of Lenders Mortgage Insurance (LMI) into account as well as the interest rate.
The lowest interest rates can also have some hidden catches, which is why we like to talk to you about your options to make sure you don’t get caught out!
How do I apply for a low doc home loan?
We are specialists in low doc finance and can help you find the right lender. Just go to our apply for a low doc loan section and send us your details. We’ll be in touch with a few competitive quotes to help you make the right decision.