Low Doc Home Loans are a finance solution for self-employed people who have income and assets, but are unable to provide the required financial statements or tax returns at the time of application, and are usually approved on the basis of the applicant self-declaring the income derived from their business (known as a low doc declaration or self-certification of income). Low Doc simply implies that the lender requires less financial documentation (such as tax returns or financial statements) than what would be required when lending under a normal full doc loan scenario.
What documents do I need to provide for a Low Doc Home Loan? Each lender has their own requirements and will accept different document types to prove your income.
The main 3 documents that can be used to verify your income are:
How do lenders assess a Low Doc Home Loans?
Most lenders look for the following key features of your low doc home loan application to determine your eligibility.
Key points are outlined below.
What documents do I need to provide for a Low Doc Home Loan? Each lender has their own requirements and will accept different document types to prove your income.
The main 3 documents that can be used to verify your income are:
- 2 years self employed with ABN number
- 12 month’s BAS statements showing a high turnover
- An accountant’s letter verifying your income
- 6 to 12 months Business bank statements showing a high turnover depending on lender
How do lenders assess a Low Doc Home Loans?
Most lenders look for the following key features of your low doc home loan application to determine your eligibility.
Key points are outlined below.
- Self-Employed History: Your ABN must be registered for a minimum of 2 years and if you are declaring an income greater $75,000 you will also need to be registered for Goods and Services Tax (GST). Some lenders will not accept an application unless you are GST registered, irrespective of your declared income. The longer your ABN and GST registration the better, it demonstrates longevity and consistency as a self-employed business owner.
- Credit History: Lenders look particularly closely at your credit file and the repayment history of your debts, as they cannot fully verify your income. The major banks are far less forgiving of any problems with your credit history.
- Equity Contribution: A minimum deposit of 20% is required for a purchase or 20% equity for a refinance. We do have access to both 85% & 90% low doc home loans, but beware, the higher the percentage of your property value that you are borrowing, the higher your interest rates and fees will be.
- Net Asset Position: Your net asset position is the total value of your assets minus your current liabilities. The higher this figure the better.
- Conduct on Existing Credit: When you apply for a low doc home loan or low doc investment home loan you may be asked to provide a recent statement on any existing mortgages held and any unsecured debts such as credit cards and personal loans. This is to demonstrate that you are making the obligated payments on these debts and that they are being managed within your credit limits. For refinance transactions it is a standard requirement that you provide 6 months statements for your existing mortgage(s) to be refinanced and generally 3 months statements for any other debts you wish to consolidate (or pay out) from the proceeds of the loan.
- Security Location: Lenders consider low doc home loans to be a higher risk, hence the restriction to 80% of the property value, in the main. By also restricting the security location to what they consider to be lower risk locations reduces the lenders overall risk. We know which locations are acceptable to the lenders, so it would be wise to check with us first.
- Equity Release: Or ‘cash out’ as it is often referred to. This is where an applicant is seeking to refinance an existing debt and obtain further funds for personal or investment purposes. Some lenders limit or require evidence for the purpose of the cash out when applying for a low doc home loan.
- Low doc home loans are a higher risk to financial institutions, therefore they place greater restrictions on this type of loan. Below is a list of potential issues to look out for:
- Higher interest rates: This will mainly depend on the lender and what sort of verification or supporting documentation you are able to provide. Some of our lenders offer the same low rates as they do for full documentation home loans.
- Higher deposit: 20% + Costs associated with the purchase price is normally required by lenders.
- LMI: Mortgage insurance is a compulsory requirement. LMI is applicable only if you borrow over 60% LVR (60% of the property value).
