How Do Low Doc and No Doc Home Loans in Australia Work?
As a small business owner or a self-employed individual, will a low doc or no doc home loan be the answer to finding a mortgage that fits your circumstances? Traditional mortgage loans are notorious for having a long list of financial documentation that needs to be complied with before a loan is approved, and you may not perfectly fit the mold of their ideal borrower. Low doc and No document home loans are a totally different option that a mortgage broker can help you with.
So what are the options for people like you who may not have fit the requirements that big banks and lenders demand? The usual loan options out there should not stop you from buying your next home or investment property. Either a low doc or no document loan may be your best bet.
What is a low doc loan?
A low documentation loan or low doc loan is an option for individuals who don’t have the standard Pay As You Go (PAYG) payslips, financial statements or tax returns that are traditionally required for loan applications. Low doc loans provide flexible solutions for people who may not be able to supply these documents.
A self-verification of income, which most likely needs a supporting letter from an accountant, recent bank statements and Business Activity Statements (BAS) are typically required for low document home loans.
Who is eligible for a low doc loan?
Low documentation loans are for small business owners, freelancers, contract and seasonal workers, or investors who rely on their investment income and other Australian Business Number (ABN) holders. Good credit history increases the likelihood of eligibility.
How much can I borrow with a low doc loan?
At maximum, lenders will approve low document home loans that are 90% loan to value ratio (LVR). This loan, however, is considered expensive and is commonly referred to as a high-end loan.
Many lenders in this space provide funding and price their risk based on LVR. So for example a 60% LVR is often cheaper than an 80% LVR in most cases.
How does a low doc loan work?
With the National Consumer Credit Protection (NCCP) Act 2009 introduced in Australia, lenders are no longer allowed to accommodate borrowers who do not comply with the lender’s responsible lending obligations.
Every loan now has to pass a serviceability assessment to ensure that borrowers are capable of managing their loan repayments. Because of this, low doc loans look more like full documentation loans. The only difference is that the documentation used as proof of the borrower’s income is different to that of a full documentation loan.
Can I switch from a low doc loan to a full doc loan?
This all depends on your lender. Some will allow you to switch for a fee and after two years of repayments being made on time.
Some lenders will request full income verification with tax returns. There is no capacity to switch with some lenders as their low doc loans and their full doc loans have the same interest rate. So it is always best to review and chat with your broker what options are available when you are looking to improve your rate, especially if you have been in the low document home loan for a while and feel like you should be getting a better deal.
What are no doc home loans?
A no doc loan is a ‘no proof of income’ home loan option. The usual requirements to acquire a home loan are not required in the no doc loans.
At present, no document home loans are not offered by most Australian lenders. Depending on your circumstances, a mortgage broker may be able to find you a specialised, non-bank lender offering no document mortgage loans for self employed, however they usually charge a higher interest rate than low doc loans with a mainstream lender. If you are wondering which way to go, chatting with a mortgage broker will get you on the right track for your mortgage.
Who is eligible for a no doc home loan?
Anyone who finds it challenging to provide all the financials that the bank requires for a loan like the self-employed, contractor or investors are most qualified for the no document home loan. Maybe your financials have yet to be completed, and you have seen significant uplift in profits since last tax returns were completed ? If you are looking for a ‘no doc home loans as a self employed’ option, we strongly advise you to speak to a professional mortgage broker. Expert brokers that specialise in self-employed borrowing needs can advise you on ways to get a mortgage loan taking into account your particular circumstances.
How does a no doc loan work?
The no document home mortgage was created for borrowers who fall outside the regulations of the NCCP Act 2009. The loan usually would cover things like:
- In the name of a company, not an individual
- For business or investment
- Secured against a commercial property
Where can I find a no doc home loan provider?
None of the major banks and lenders in Australia offer no document home loans anymore. People who have opted for, or are highly interested in a no document loan, are recommended to discuss and perhaps apply for a low documentation home loan. And by using a mortgage broker to ensure you get the right home loan advice and lending options for your personal circumstances.
A mortgage broker can advise if there is a specialised non-bank lender that can help you if you fall in the no doc category, and whether it will be worth it with a higher interest rate and entry fees, compared to making a low document loan work for you. Mortgage brokers have a legal duty to work in your best interest. And they will work with you to get you the best option available to you, whether it is a no document home loan, a low doc home loan, or whether a more typical mortgage option can work for you.
These low doc and no doc loans can come with extra steps and sometimes hefty costs. And you often get one chance to get it right with lenders, especially around the correct documentation to support the application. So it is recommended that you engage a mortgage broker for specialist advice if you think a low doc home loan or no document home loan is your best option.
