Low Doc Loans
Low doc loans are a popular option for self-employed individuals or those with non-traditional income sources, but they come with certain risks that financial institutions view as higher. As a result, these loans typically come with stricter conditions and higher interest rates.
In Australia, only a select group of lenders offer low doc loans, and many of them charge higher interest rates to compensate for the perceived risk. Additionally, there are specific restrictions you should be aware of when applying for these types of loans:
Common Restrictions and Requirements for Low Doc Loans:
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Higher Interest Rates: Depending on the lender and the type of documentation you can provide, interest rates on low doc loans can be significantly higher than standard home loans. However, some lenders may offer competitive rates similar to full documentation loans.
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Larger Deposit Requirements: Typically, a 20% deposit is required, although some lenders may accept less.
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Lenders Mortgage Insurance (LMI): If you borrow over 60% of the property’s value, LMI is usually required to protect the lender in case of default.
How to Get Approval for Low Doc Loans
Getting approval for a low doc loan is more involved than for traditional home loans, and it’s essential to follow a clear process to increase your chances of success:
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Document Review: Identify which documents you can provide and understand the lender’s requirements. Your mortgage broker will assess your situation and find lenders you qualify with.
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Choosing the Right Lender: Compare interest rates, fees, and LMI premiums from different lenders, ensuring they offer the loan features you need.
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Prepare Your Application: Ensure your application is structured properly to meet the lender's criteria and make a positive impression. It’s important to only submit the required documents — over-sharing can lead to complications, as lenders may request more detailed information.
Key Features of Low Doc Home Loans
Low doc home loans are designed for those who face challenges in providing traditional forms of income verification. Here’s what you can expect:
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Flexible Income Verification: Lenders accept alternative documentation such as business activity statements (BAS), bank statements, and letters from accountants, instead of traditional payslips and tax returns.
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Higher Interest Rates: Due to the higher risk involved, low doc loans usually come with higher interest rates compared to standard loans.
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Lower Loan-to-Value Ratio (LVR): A larger deposit may be required, and some lenders impose a lower LVR to reduce risk.
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Limited Loan Features: Certain loan features such as offset accounts or redraw facilities may not be available, or they may come with additional restrictions.
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Additional Fees: Some lenders charge higher fees for low doc loans to compensate for the increased risk.
Eligibility Criteria for Low Doc Loans
To qualify for a low doc loan, lenders generally require you to demonstrate a stable income. However, the documentation required is less extensive than for traditional loans. Typical eligibility criteria include:
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Self-Employed for at Least 12 Months: Many lenders prefer applicants who have been self-employed in the same industry for at least 12 months. Some lenders will accept as little as six months of self-employment, especially if you have prior experience in the same field.
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ABN Registration and GST: Your ABN must be active, and you should be GST registered for at least six months, although some lenders may require a longer period of registration.
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Alternative Income Verification: Lenders typically accept BAS, business bank statements, and letters from accountants in place of traditional payslips.
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Credit History: For refinancing, you will generally need a clean credit history, with no dishonours or arrears in the last three months.
Documents Required for a Low Doc Application
To apply for a low doc home loan, you’ll need to provide alternative documentation to verify your income and employment. These are the key documents you may need:
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Business Activity Statements (BAS): Typically, lenders will require 6 to 12 months of BAS showing a healthy turnover.
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Accountant Letter: An accountant’s letter verifying your income may be required. Lenders may contact the accountant to verify the details.
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Business Bank Statements: Bank statements showing a consistent income or high turnover are commonly accepted.
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Interim Financial Statements: Some lenders accept interim financial statements as proof of income.
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ABN Verification: Ensure your ABN registration is up to date and verifiable.
It’s important to work closely with a mortgage broker who understands low doc loans and can help you navigate the requirements of different lenders. This will increase your chances of approval and ensure a smoother application process.
Why You Should Use a Mortgage Broker?
An experienced mortgage broker can guide you through the complexities of low doc loans, helping you avoid common pitfalls. We can assist with choosing the right lender, ensuring your documentation meets all requirements, and presenting your application in the best possible way.
For expert advice and assistance with your low doc home loan application, speak with one of our specialist mortgage brokers. Call us at (03) 9566 7247 or book a free 30-minute discovery call today to see how we can assist. By working with the right professionals, you can secure the best possible outcome for your low doc home loan application.
Experience the Avenstone difference:
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Tailored Solutions: We take the time to understand your unique needs and craft the perfect solution for you.
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Competitive Rates: Benefit from our expert negotiation skills to secure the most competitive home loan rates.
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End-to-End Support: From application to settlement, we’re with you every step of the way, ensuring a smooth and stress-free process.
Who Should Consider Applying For A Low-Doc Loan And Why?
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Self-Employed Individuals: If you run your own business, you might not have the traditional documentation such as 1-2 years of tax returns that most lenders require. Low-doc loans provide an opportunity to use alternative income verification, making homeownership more achievable for those who are self-employed.
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Freelancers and Contractors: For those with fluctuating or irregular incomes, such as freelancers and contractors, traditional income verification methods can be a challenge. Low-doc loans offer a streamlined solution by allowing you to submit non-traditional documentation, helping you secure financing without the need for extensive paperwork.
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Property Investors: If you’re a property investor relying on rental income or multiple income streams, a low-doc loan can be ideal. These loans are designed to accommodate various forms of income verification, making them a useful option for investors who may not have traditional pay slips or tax returns.
Pros and Cons of Low-Doc Home Loans
Pros
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Accessibility for self-employed and non-traditional earners.
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Flexible documentation requirements, which makes applying easier for those without traditional paperwork.
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Potentially faster approval process, thanks to simplified documentation.
Cons
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Higher interest rates compared to full-documentation loans.
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Larger deposit required (usually around 20% of the property value).
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Limited lender options, reducing the pool of potential providers.
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Lenders Mortgage Insurance (LMI) is often required if borrowing over 70% Loan-to-Value Ratio (LVR).
Frequently Asked Questions about Low Doc Loans
Do You Have Questions About Low Doc Loans? We can Help!
If you're uncertain about whether a low doc loan is the right choice for you, don’t worry — our team is here to provide the guidance you need. Our mortgage brokers are experts in low doc loans, helping clients with non-traditional income sources navigate the application process with ease.
With years of experience working with lenders and understanding the nuances of low doc loans, we know how to tailor your application to improve your chances of approval.
Call us on (03) 9566 7247 or book a free 30 minutes discovery call to see how we can assist you in securing the perfect low doc home loan.
Years Experience
20+
in Residential & Commercial Banking