Choosing a low doc loan
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:
- 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?
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!
8 Tips To Follow As A Self-Employed Borrower
Tips & Tricks From Our Experts To Increase Your Chances Of Approval
Which low doc home loan lenders can help me?
Some low doc lenders are better than the others when it comes to your low doc applications.
- Alternative documents the lenders require to prove your income may vary.
- Looking at lower interest rates may not be wise as some lenders may include hidden charges.
- Take into consideration the application fee and LMI fee that lenders are offering.
We recommend choosing a lender that allows you to refinance to a full doc loan once you have completed your tax returns.
Our experienced mortgage brokers can help you be sure of which low doc lender to go with. Please call us on 1300 889 743 to speak with one of our experts.
Low doc home loan requirements
What documents are required for a low doc loan?
For modern day low doc loans, you must 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 (sometimes lenders might call the accountant to verify the letter).
- Business bank statements showing a high turnover.
- Interim financial statements.
We have a lender who can consider low-doc applications based solely on the interim financial statements depending on the overall strength of your application.
Under the National Consumer Credit Protection Act (NCCP) Act, lenders require you to provide income verification before approving 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.
Length of ABN / GST registration
Most 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 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, you would be expected to have around $200,000 in net assets.
This is a stringent 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.
Security property
Lenders prefer prime security properties in high demand locations like capital cities or regional centres. Many lenders do not accept properties that are unique, in disrepair or difficult to sell.
You can refer to our list of low doc property types for more information.
Total exposure
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 borrow more than $2.5m with some of our lenders but they would need to have significant assets and borrow a low percentage of the property value.
Equity releases
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.
Refinances
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.
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.
