Whether you’re planning to take out your first home loan, refinance your existing mortgage, or invest in a property, one of the key decisions you...Read more
Low Doc Loans
Low doc loans aren’t no doc loans
It’s important to note that a low doc loan doesn’t mean ‘No doc loan’. It’s just as it sounds – a loan requiring less documentation of regular income and assets which outweigh risky liabilities in the eyes of a lender. Like traditional home loans, low doc home loans require a set amount of documentations and requirements:
- Borrowers must possess a clean credit history.
- Maximum borrowing of 80% of the property’s purchase price. You will have to be able to borrow a maximum of 60% if you wish to avoid paying Lenders Mortgage Insurance (LMI).
- Have evidence of full property valuations.
- No second mortgage on a property.
- Self-employed for at least 1 year (some lenders require 2 years).
- Evidence of ABN registration for 6 months
- Evidence of GST registration for 6 months
- A declaration of financial position with one of the following: 6 months business bank statements (inclusive of last 1 month) or 6 months business activity statements (BAS).
Choosing a Low Doc Loan That is Right For You
Compared to traditional home loans, low doc loans are considered higher risk due to their large borrowing amount by lenders. As a result, they have more restrictions.
While there are a few lenders in Australia that offer low doc home loan products, they may offer significantly high interest rates.
Our Rateseeker experts have outlined what you should consider when applying for this type of loan:
- High interest rates: This depends on the lender you choose and the verification document that you can provide.
- Larger deposit amount: For this type of home loan, 20% deposits are typically required
- LMI: You may have to pay our Mortgage insurance if you borrow over a 60% Loan To Value Ratio (LVR)
Getting approval for a low doc home loan isn’t as straightforward as most traditional loans. We suggest following a guideline to help you find the appropriate lender:
- Research which documents you know that you can provide, what your needs are and which lenders and low doc products you can qualify for.
- Select a lender with low interest rates, fees and LMI premium, and the loan features that best suit your financial situation.
- Take into consideration the application fees and LMI fee that competing lenders are offering.
- Present your application in a way that is seen favourably by lenders. Provide partial proof of your income such as full financial statements and tax returns.
Pro-tip: Lenders cannot ignore a document when they’re completing their assessment, so only provide documents requested by the lender and nothing more.
Struggling to find the low doc loan that best suits your needs? Use our free calculators to help you with your next property purchase or refinance for any given interest rate and loan term. Alternatively, don’t hesitate to contact our team today.