low doc loans
Low doc and non-conforming loans can be your gateway to securing a home loan when traditional lending criteria don’t fit your situation. Discover the pros and cons here.
Low-doc or no-doc mortgages are ideal for investors or self-employed borrowers who need to refinance, purchase, or renovate a property.
Because the income verification relies on alternative documentation rather than conventional methods, lenders often see low doc loans as higher risk. As a result, these loans usually come with higher-than-average interest rates and may have more restrictions on the maximum Loan to Valuation Ratio (LVR), available loan features, and potential package discounts.
A self-employed borrower would typically need to provide proof of income using a combination of the following:
- Proof of ABN and/or GST registration
- Business Activity Statements (BAS)
- Business Account transaction statements
- Accountant’s letter
- Personal tax returns
Before applying for a Low Doc home loan, it’s worth sitting down with an experienced mortgage broker to work out your net income and the amount of loan you can realistically afford to service on a regular basis. Doing this could help to avoid disappointments, plus you could also uncover more lenders or product choices which you were not previously aware of.
What are the pros and cons of low doc loans?
Pros:
- Simple income declaration form
- Alternatives to tax returns as income evidence are available
- Fully serviceable loan options, redraws, line of credit, variable or fixed rates
- Principal & Interest or Interest-only loans
Cons:
- Generally a higher interest rate and potentially fewer features
- Not every bank or lender offers low doc loans
- Can incur risk fees
who should consider a low doc loan?
Self-Employed Individuals: Running your own business often means not having the standard documentation, like 1-2 years of tax returns, that traditional lenders require. Low doc loans provide a pathway to homeownership with alternative income verification, making it easier to get the funding you need. To estimate your monthly payments, you can use a Loan Repayment Calculator.
Freelancers and Contractors: If you have a fluctuating income or work on short-term contracts, proving consistent income can be a challenge. Low doc loans simplify the process by offering flexible options for securing financing without extensive paperwork.
Property Investors: For those relying on rental income or juggling multiple income streams, low doc loans can be a practical solution. These loans accommodate various forms of income verification, helping investors expand their portfolios with ease.
eligibility criteria for a low doc loan
To qualify for a low-doc home loan, borrowers still need to demonstrate a steady income, but with less documentation than traditional loans. Here’s what you can expect:
- Self-Employment Duration: Typically, you need to be self-employed in the same industry for at least a year. Some of our lending partners may consider as little as six months if you have prior employment in the same field for at least 12 months. For the most competitive loan options, 24 months of self-employment may be required.
- Active ABN: Your ABN should be active or GST-registered for at least six months. However, some lenders may require it to be active for one to two years.
- Alternative Income Verification: Low-doc loans accept alternatives to traditional income proof, such as BAS statements, business bank statements, or accountant declarations. Lenders usually need 6-12 months of BAS to assess your income.
- Refinancing Requirements: For low-doc refinancing, having a clean credit file with no dishonours or arrears in the past three months is essential.
- Varied Lender Policies: Different lenders have different policies and criteria. The maximum Loan-to-Value Ratio (LVR) without Lenders Mortgage Insurance (LMI) is determined on a case-by-case basis, depending on the strength of your application.
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