A low doc loan, also known as lite-doc or alt-doc loans, are lending solutions for self-employed borrowers. These are used by contractors, freelancers and people who haven’t any regular jobs and can’t prove their income through traditional means like providing payslips.
What documents will I need to provide when applying for a low doc loan?
While all documents required for a low doc loan are similar to a full doc loan except for proof of income. Where you supple last two payslips and proof of income for previous tax year for a prime loan, for a low doc loan you will require a signed Borrower’s Income Declaration stating your usual income registered business name and Australian Business Number (ABN) supported by either:
- 6 > 12 months’ worth of Business Activity Statements Statements (BAS)
- A letter from your accountant confirming your income stated.
- Previous bank statements (usually over six months.
- Old tax returns (over 24 months) interim financial statements
Policies on low-doc loans may vary from lender to lender, so read the eligibility criteria carefully before you apply, or seek the assistance of a mortgage broker who is experienced with these loans.
What restrictions are there on low doc loans?
Low doc mortgages are more restrictive than standard loans, as they present a higher risk for lenders:
- Maximum LVR: Most low doc lenders will accept loans up to 80% of the property value, and risk fees may apply to any loan with an LVR over 60%. Some will consider lending up to 85% LVR, while only some may consider up to 90% LVR.
- ABN registration: ABN may be a key factor lenders use to work out how long you have been self-employed. To access a low-doc loan with an LVR of 85% or lower, your ABN has to be registered for a year. If you’re declared income is more than $75,000 per anum, your ABN must be goods-and-services tax (GST) registered.
- Interest rate: You may have to pay a higher interest rate to compensate lenders for the risk low-doc lending presents. However, it’ll still depend totally on the lender and what form of verification or supporting documentation you’re able to provide.
- Deposit: 20% Plus costs of the acquisition price is typically required, but some lenders may require less.
- Credit history: Lenders look closely at your credit file and debt repayment history, as they can’t fully verify your income. one in all the items they consider is that the age of any defaults. The older the default, the more favourable it’ll be for you.
- Net asset position: Your overall net assets – gross income minus current liabilities – reflect your financial strength as a borrower. the more assets you have, the better.
- Property location: Lenders prefer prime security properties in high-demand locations like capital cities or regional centres. Many of them don’t accept properties that are unique, un-repaired or difficult to sell.
- Maximum loan exposure: Lenders have set limits to scale back their exposure and risk for low-doc lending. Most of them prefer borrowers with total debts below $1 million. Only some lenders allow loans of up to $2.5m per borrower group – e.g a husband and wife’s total borrowings combined.
- Cash Out: Lenders usually require proof of how you may use the loan funds if any money is directly released to you. This can be because they’re concerned with the likelihood that a borrower might not even have an income and can just be using the cash to make repayments.
What loan features are available?
With a low-doc loan, you’ll enjoy most of the standard loan features, interest-only option fixed interest rates split-loan option line of credit 100% offset account with the ability to create extra repayments However, there are features not available for low-doc loans: third-party guarantees introductory interest rates repayment holiday security substitution (in some instances)
How are you able to get approval for a low doc loan?
First, know which documents you’ll be able to provide, what your needs and objectives are and which lenders you’ll qualify with then present your application in a way that the lender will see it favorably. To avoid potential issues, provide only the documents requested.
Can you refinance your low-doc home loan?
Yes, you can apply for a prime loan once you have 2 years of lodged tax returns confirming your income and as long as you’ve got made all the repayments.