Low Doc Loans for Self Employed Australians
Self employed Australians whose financial position is ‘unusual’ and income ‘irregular’ tend to not meet the bank qualifying criteria will use low doc loans as a lending solution.
Applying for a home loan involves the applicant putting together mountains of paperwork and places under the microscope every facet of their finances. Applicants in steady employment always fare best with traditional lenders.
Low Doc Loans are also known as “non-conforming” loans. This is because they cater to applicants who do not conform to the borrowing criteria applied by traditional lenders.
In Australia, the value of low-doc mortgage approvals is on the increase even though the value of total housing loan approvals has been broadly flat. As a result, while low-doc loans are estimated to account for only around 2 per cent of all outstanding housing loans, their share has been rising.
The rapid growth of this market has occurred alongside increased competition. The major banks were slower to enter the market, but they have recently begun to actively promote low doc products.
The most common users of Low Doc loans are:
o Small business owners;
o Self-employed ;
o Seasonal workers;
o Self Employed Persons who do not have recent tax returns ;
o Short-term contract employed;
Low Doc loans enable someone whose financial position does not fit the traditional lender mould to finance a house which they know they can afford.
When applying for a Low Doc mortgage the lender may still ask about your income and asset and liability position. They will also check your credit history. Unfortunately most lenders in Australia will not consider a Bad Credit Low Doc Loan however there are some funders that will allow bad credit low doc home loans. Low Doc Loans often require a letter from the applicant’s accountant or BAS Statements to substantiate the income declared on the mortgage application. No tax returns or financial statements are required.
Low Doc loans are perceived in the lending market as being of a ‘higher risk’ than the full documentation mortgages.
Lenders do not like risk. The riskier they perceive a loan to be the more interest the borrower is likely to pay. Consequently Low Doc borrowers tend to incur a marginally higher interest rate than the full documentation, traditional borrowers. Bad credit options are also available from some low doc lenders.
Furthermore the riskier the loan is the less Loan-to-value ratio the lender will be prepared to advance. While first home buyers in the Australian loan market are now offered home loans that go up to 95% of the value of the property they are looking to buy – this is not available with Low Doc loans. Generally most Low doc home loans will go up to 85% of the property value, while in most cases.
Nonetheless Low Doc mortgages offer a fantastic opportunity to numerous Australians to either purchase their home, or if they like, build up a whole real-estate empire. The later is just about impossible using a full doc mortgage. While many of us start out as full documentation applicants. Those that would like a future in real-estate investment will eventually need to seek finance through the non-conforming market.