How do no doc loans work?
The concept of a no doc home loan is to help self-employed borrowers who don’t have access to regular PAYG payslips or other documents to prove their income.
Most financial institutions don’t deal in this space as such types of loans pose higher risk to lenders.
Lending criteria for no doc loans
No income evidence
Unlike a low doc loan, you don’t need to provide any evidence of your income.
Please be aware that some lenders will still ask you to sign a statement of your assets and liabilities or a declaration that confirms that you can afford the loan.
If they ask you to sign a declaration, then it will not ask you to confirm your income, just that you can afford the repayments.
Your loan must be NCCP unregulated. This means that your loan must meet one of the below criteria:
- Your loan must be for business purposes, or
- Your loan must be secured by a commercial property, or
- Your loan must be for investment purposes (other than in residential property), or
- Your loan must be in the name of a company or trust with an ABN.
If your loan doesn’t fit into at least one of the above conditions then it will be declined by all no doc lenders.
This is because the NCCP Act covers all loans with a personal purpose, owner occupied or for investment in residential property.
Under the Act, the lender is breaking the law if they don’t verify your income.
You’ll be required to sign an investment or business purpose declaration to prove that the loan is NCCP unregulated.
The security for the loan is all that the lender is relying upon. For this reason, the lender is very particular about the property that they’re taking as security.
As a general rule the property must be:
- In a good location.
- In good condition.
- Larger than 50m2 for a unit or under 2 hectares for land.
- Readily saleable.
- Residential properties, offices, factories, warehouses and retail may be acceptable for a commercial no doc.
Whilst some no doc lenders will approve a loan for someone with an impaired credit history, this isn’t the case for all lenders.
If you have a problem with your credit history then you’ll almost certainly pay a higher interest rate.
No doc loans aren’t normally designed to be for a long period of time.
In most cases, they have a term of 6 months or 3 years and then their interest rate will increase.
Lenders want to know how you have an exit plan to repay the loan.
In most cases, the borrower plans to sell the property or another asset to repay the loan.
How can I get a no doc loan?
Our expert brokers can help you obtain competitive no doc loans through our panel of lenders and can also arrange a private loan if you can’t get a loan any other way.
Please give us a call on 1300 889 743 or complete our free assessment form and we’ll find the right lender for you!
What banks offer no doc loans
All four of the major banks and many of the major lenders in Australia no longer offer no doc home loans.
The lenders that can help are smaller, specialised non-banks that typically charge a higher interest rate than a low doc loan with a mainstream lender.
In addition to this, Lenders Mortgage Insurance (LMI) isn’t available, so these lenders usually charge a 1% to 2% application fee to cover their risk as well as processing costs.
Typically a credit history check will be undertaken and you’ll need to show proof of a registered Australian Business Number (ABN). However, most won’t have a specific policy around how long it needs to have been registered.
The big thing to keep in mind when deciding whether to get a low doc loan instead is that they come with cheaper fees and interest rates than no doc loans.
You may want to consider it if you’re just a few months away from having your last tax return and it accurately reflects your current level of income.
Similarly, is your accountant able to provide a letter proving your income?
We know no doc lenders that might be able to help you with your current situation.
Simply fill out our free assessment form today.
Can I get a private no doc loan?
There are several hundred private lenders that fund no doc loans. The lenders are diverse, ranging from individuals with large sums of money to mortgage funds and even institutional investors.
Most of them operate through a specialist mortgage broker or non-bank lender that matches borrowers with lenders for a fee from the customer. Your mortgage broker will charge you a fee to arrange your loan because most private lenders don’t pay them any commissions.
Private lenders are far more expensive than the major lenders in Australia. You can expect the interest rate to be anything from 2% to 6% per month! That’s up to 72% per annum!
Private no docs aren’t normally designed to be long term loans but are instead used for one to six months.
The advantage of private no docs is that they can be funded in as little as 72 hours, they don’t require a credit check or other loan assessment and can sit behind your bank loan as a second mortgage or caveat.
In other words, if you have a large mortgage and only need an extra $30,000 you often don’t need to refinance the entire loan to a higher rate but can instead just pay the higher rate on the extra amount you are borrowing.
If you’re considering getting a private no doc loan, we strongly recommend that you use it only as a last resort and that you obtain legal and financial advice before signing the private loan agreement.
Unfortunately, not all private lenders are reputable, please be careful who you do business with.
What investment purposes are unregulated?
If your loan is for investment purposes then it is not regulated by the NCCP act. The exception is if your loan is to buy or refinance a residential investment property loan.
So which investment or business purposes are considered to be unregulated?
- Purchasing shares.
- Starting a business.
- Buying a commercial investment property.
- Refinancing a margin loan.
Do no doc loans still exist?
Yes, and you may be able to get a no doc mortgage if you don’t meet the income verification requirements for a traditional home loan.
A handful of our lenders can help but their policies may vary. It’s best to check with one of our specialist mortgage brokers to discuss your no doc options.
What are the interest rates?
The type of lender that you use, the nature of your security property and your credit history will determine the interest rate that you will pay.
In other words, no doc loans are a “rate for risk” type product. The higher the risk you are to the lender, the more expensive your loan will be.
In most cases, low doc loans range from 7% p.a. to 11% p.a. depending on the percentage of the property value you’re borrowing and your credit history.
If you’re looking for a short term caveat loan then you can expect to pay 24% – 76% p.a.
In most cases, this type of caveat lending does not benefit the borrower and so we’ll not help you apply for a loan like this except in exceptional circumstances.
Can I still get the same home loan packages?
Even though your rate will be slightly higher, you can still get access to all of the home loan features of a regular mortgage including:
- Fixed interest rates
- Variable rates
- Professional package discounts
- Line of credit
- Redraw facility
- 100% offset account
- Salary crediting
Why do they call it an ‘asset lend’?
No docs are often called asset lends because the lender relies almost entirely on the value of your property being higher than the amount of your loan.
They aren’t looking at your income or other indicators that can help them decide if your loan should be approved or not.
Only private no doc loans are true asset lends. The second tier lenders still do some form of credit assessment when approving your loan.
Get a no doc home loan today!
Our expert brokers can help you choose the best no doc loan option from our panel of lenders.
Call us on 1300 889 743 or complete our free assessment form to find the right lender for you!