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Low doc loans are a higher risk to financial institutions so they tend to place greater restrictions on this type of loan.
There are very few lenders that offer low doc solutions while others have significantly increased the interest rates they are applying.
There are few potential issues to look out for:
There may be few more issues which lenders advise upon assessing the case.
Which lenders do you qualify with?
Which lender has the lowest interest rates? How much will be my LMI?
Our team specialise in low doc mortgages. We can quickly assess your situation and get back to you with the best suitable options.
Lenders demand supporting documents to verify your income.
Each lender has their own requirements and will accept different document types to prove your income.
The documents that can be used to verify your income are:
Under the National Consumer Credit Protection Act (NCCP) Act lenders are required to have some kind of income verification from you before they can approve your mortgage.
If you can’t provide one of these documents then it is unlikely that you can get approval for a low doc loan. A no doc loan can be a option then.
Most lenders will accept loans for up to 60% of the value of your property (60% LVR). Some will consider lending up to 80% LVR. One of our lenders will consider a 90% low doc loan.
The higher the percentage of your property value that you are borrowing, the higher your interest rates and fees will be.
The majority of lenders require you to have an ABN that has been GST registered for two years but this varies between lenders.
For a startup business, some lenders will accept an ABN older for one day only.
Borrowers should have a good asset to income ratio. One of our lenders likes to see that you have a net asset position that is equal to two times your annual gross income.
For example, if you earn $80,000 a year then you would be expected to have around $160,000 in net assets.
This is a very strict policy for younger applicants and is a little lenient for older borrowers.
It is important to choose a lender with a right policy according to our needs.
Lenders look particularly closely at your credit file and the repayment history of your debts because they cannot fully verify your income.
The major banks are far less forgiving of any problems with your credit history.
We do have options with some of our specialist lenders if you have a bad credit history.
Lenders prefer prime security properties in high demand locations like capital cities or regional centers. Properties that are unique, in disrepair or difficult to sell are not accepted by many lenders.
You can refer to our list of low doc property types for more information.
Most lenders prefer low doc borrowers with total debts under $1 million.
A few select lenders allow loans of up to $2.5m per borrower group (e.g. a husband and wife’s total borrowings together).
On a case by case basis we can help investors to borrow more than $2.5m with some of our lenders but they would need to have significant assets and be borrowing a low percentage of the property value.
Lenders normally require proof of how the loan funds will be used if any money is released directly to the borrower.
Lenders are concerned that the borrower may not actually have an income and is using the money to make the repayments or that equity is being released to be used as a deposit to buy further properties.
Some lenders will not refinance an existing low document home loan or existing investment loan but will allow you to purchase a property with a low doc loan.
Refinances are known to be a higher risk than loans used to purchase a property.
Unfortunately, many people are caught out by this if they buy vacant land and then later refinance when they decide to build.
Certain types of low doc loans are much more difficult to obtain than others including loans to refinance existing mortgages or home loans without BAS statements to back up declared income.
In the past, you would have been able to obtain a self-certified low doc home loan and, if you had an ABN that had been registered for over two years, it was easy to get approved for a low doc loan.
After the introduction of the NCCP Act by the Australian Government, the banks have tightened their lending criteria.
This means that the banks now require proof of income, and in particular, several types of home loans are now very difficult to finance:
However, we do have lenders that can assist with most of the above loan types.
You can get almost all of the normal home loan features with your low doc loan:
The following are generally not available with a low doc mortgage:
In most cases, you would need to lodge a new application so that the lender’s credit department could review your situation at the time that a repayment break or new security property was required.
Low doc home loans are designed to assist those who have a deposit saved or who have existing equity in a property but are self employed and have difficultly showing proof of their income.
In particular, business owners like sole traders, people in partnerships, or company owners who cannot provide full financials due to complications in their business structure.
Similarly, businesses that have grown significantly in the most recent financial year compared to the previous financial year, hence, their current income evidence does not reflect their actual earnings.
They can also be of use to professional investors, people with fluctuating incomes or people who have had a low income in the last financial year.
A low doc loan may be the best fit for the self employed as minimal documentation is required to qualify for this type of loan.
You may be able to borrow up to 80% LVR (80% of the property value) by providing alternative income verification documents such as financial statements, business bank statements, BAS statements or an accountant’s letter.
You can refinance out of your current low doc loan when you owe less than 80% of the property value on your mortgage, you are outside of a fixed term and you can provide the following business financials:
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