Low Doc Home Loans in Australia
Low doc home loans are a simple home loan that do not require income verification documents like tax returns. An income declaration signed by the borrower to support the application form and verification through your Accountant or BAS Statements is all it takes to get the low doc home loan approved. Your loan approval depends on your income declaration statement and cross verification checks.
The loan-to-value ratio and your rate of interest on low doc home loans
The LVR or the loan to value ratio will decide the rate of interest on your loan and also whether you are a worthwhile risk by the lender. The lenders use this ratio to decide whether to approve your loan. The LVR is calculated with the following formula:
Loan amount / the lesser of the property value or your purchase price x 100
If say, for instance, if the property is worth $2,000,000 and the loan is $ 1,000,000 then the LVR is = $ 1,000,000 / $2,000,000 x 100 = 50 %
Most lenders take 60% as a safe LVR when it comes to low doc loans. If the LVR exceeds 60% but is less than 80%, then you might have to insure your loan with a lenders risk fee. For LVR more than 80% the loan becomes a high risk loan.
Can a low doc loan actually get declined?
Surprisingly, low doc loans can be declined if the income declaration form shows an income that is insufficient to service the loan. Other restrictions are property location, a bad credit history or type of property. There are funders that will lend to the credit impaired Self Employed on a low doc basis.
A low doc lender would certainly want to ensure that you are in a position to repay the loan in spite of holding your property as security. Recovering the loan through a sale of the property held as security is only done when there is absolutely no other way out.