What are Low Doc Home Loans in Australia?
Low doc home loans are those loans in which the borrower is either unable to or unwilling to submit proof of income. Hence these loans are categorized as high risk home loans. A low-doc home loan is riskier as compared to the standard home loan but it still has its own requirements, which you will need to furnish to the lender in order to get an approval for the loan.
o As a borrower, you should be able to provide ample proof of having a clear or good credit history if you want a better rate. If you have 2 small paid defaults then also your loan will approved but anything more than that will meet with rejection. The 2 small paid defaults are allowed only if the amounts are under $1,000. For Credit Impaired there are also Bad Credit Low Doc Home Loan options.
o As a borrower you will have to offer a minimum of 20% equity as security, although the percentage might change from one lender to another and some lenders might take more than 20%.
o As a borrower, you will be required to prove that you have been through a registered ABN process for a particular period of time.
o If you are unable to provide proof of income then you will be required to fill a form for income declaration.
o Most of the low-doc home loans are risk insured. There are some lenders who might absorb a particular cost attached to your mortgage insurance premium.
o Most of the low-doc home loans are available through non-conforming lenders.
The interest rate that is offered on any of the low-doc home loans is typically higher than any of the standard variable interest rate home loans. Off late, lenders have started to offer similar rates for both variable and low-doc home loans. There are a few differences between a standard home loan and a low-doc home loan and they are:
o Low-doc home loans do not require tax returns, which is required while taking a prime home loan.
o As a borrower, you will be required to only fill a declaration that will confirm your ability to pay back the loan unlike in a standard home loan. This process is called the self-certification process.
o Low-doc home loans are a more attractive option for the self-employed.
You need to carefully consider your options and discuss with a Mortgage Broker that Specialises in Low Doc Loans before actually applying for a low-doc home loan.
