People who are self-employed or who run a small business will have difficulties in producing the required loan documents when applying for a home loan. If you are in this situation, a low doc home loan could be the solution you are looking for.
While a low doc home loan is an option for a self-employed applicant, it’s worth noting that these loans are getting harder to find in Australia. Lenders offering these options are scarce.
Given that the options are becoming harder for self-employed applicants, the low doc home loan interest rates are also becoming more expensive. The required deposit is also becoming more and more.
Mortgage Broker Melbourne - Find a Better Rate have mortgage specialists who specialize in low doc lending. We have dealt with clients struggling to find a lender who is willing to extend loans to someone without a fixed salary.
We have the ability to provide lending up to 90% on a low doc loan and have access to rates that can be provided to full doc applicants.
Our mortgage brokers will help you find the right deal and assist you in finding interest rates similar to those offered to full doc applicants.
For more info and tips about low doc lending, please read on...
What is a Low Doc Home Loan?
Low documentation (low doc) home loan caters to small business owners and self-employed borrowers, where tax returns and financial statements as proof of income may be lacking.
You will still need to produce evidence of your income, which in most cases could be a bank statement, legal declaration or a BAS statement. More on these later...
Since low doc home loans are regarded by lenders as riskier than the regular loans, most lenders will require a larger amount of down payment for your new house. In addition, they will consider:
- Good Credit Standing: Your chances of approval are lower if you have a bad credit history. A good record will demonstrate to lenders that your risk of defaulting on a loan is low.
- Source of Income: You need to convince the lender that you have enough funds to pay loan amortizations on time.
- Assets: Offering assets like a car or another house as collateral could be one way to prove your willingness to pay.
- Equity: A large equity payment will make your position stronger and help convince lenders that you to have the means to pay off your loan.
When To Use a Low Doc Home Loan?
Most self-employed or small business owners use a low doc home loan to get approved for a mortgage. However, you should consider low doc loans in other circumstances too:
- Refinancing with unlimited equity release
- Business expansion or to settle costly overdrafts
- Construction loans to build one or more properties
- Debt consolidation including personal loans, credit card debt, and car loans
- Special loans for people with bad credit history
- Low doc commercial loans and refinances
- Loan productions without Lenders Mortgage Insurance
What Types Of Low Doc Loans Are There?
Low doc loan is the catchall term for taking out a loan without providing the usual requirements lenders ask for. Here are the most common types of low doc loans.
No Business Activity Statement (BAS) Low Doc Loans
Following the enactment of the National Consumer Credit Protection Act, most lenders required borrowers to submit a Business Activity Statement for the last 12 months as proof of income.
What If You Don’t Have A Business Activity Statement?
Don’t worry, you can still take out a loan. In fact, some No BAS Low Doc loan will offer rates lower than the standard bank rate.
You will also need to meet the following criteria:
- GST and ABN registration should be at least two years old
- Credit history should have no adverse listings and default
- Provide either a business bank account statement or an accountant’s letter
- Maximum loan amount against the property is 80 percent
If you are not registered for GST, your total declared income should be less than $75,000. You can also send a letter explaining your circumstances and why you are not GST registered.
If your ABN is less than two years old, most of our partners will allow you to borrow up to 60 percent of the property value at a discounted rate.
No Payslip Low Doc Loans
You generally need to provide payslips as proof of income if you want to take out a loan. Lenders are less likely to accept your loan application if you don’t have a payslip, and they might also charge higher interest rates.
But don’t worry if you don’t have a payslip; it is more common than you think. Small businesses, especially those who pay employees in cash, rarely issue payslips. Some also issue handwritten payslips, and these don’t serve as proof of income.
Employees receiving irregular income might also find it challenging to submit payslips.
Other means of proving your income include
- Tax return
- Bank statement for the last three months
- Letter from your employer
- Latest group certificate
Banks will not accept handwritten payslips or pay envelopes. Computer generated pay slips through the use of an accounting system are accepted.
Any payslips you do produce should also include the following information:
- Employer’s ACN or ABN number
- Employee’s Name
- Year to Date Income
- Pay Period
- Payslip must be dated four weeks or less from the date of application
- Special deductions require an explanation
No Income, No Assets Loan
While it’s not always necessary to submit payslips, you will need to prove that you have the means to pay the loan. You need to sign a declaration stating that you can afford the loan.
Aside from the declaration, you need to produce proof that you can pay back the loan and the means by which you plan to settle the amount due.
What Are Low Doc Loan Requirements?
Applicants need to provide proof to help the lender determine how much you can borrow. The most common documents lenders will ask for include:
- Bank statements
- Business activity statements for the past 12 months
- Letter from your accountant
- Signed income declaration
Pros And Cons Of Low-doc Lending
Take a closer look at this loan type to see if a low doc loan is right for you.
Low doc loans suit those who are self-employed and those who can’t provide payslips or tax returns.
Benefits of low doc loan include:
- Allows you to get a loan without the usual proofs of income.
- Buying a house becomes a more achievable goal through this avenue.
Low doc loans are not for everyone. Here are some points to consider:
- Higher Deposit. When you take out a low doc home loan, lenders are more likely to request a higher deposit.
- More Expensive Rates. Since the risk is higher for lenders with a low doc home loan, and interest rates tend to be more than the usual home loan rates.
- Subjected to Fees. Some low doc lenders charge application and other processing fees. This added expense is common for this type of loan.
Different lenders will attach different features to the low doc loans they offer. Some of the most common features include:
- Redraw facilities: Variable rate low doc loans often support this function while fixed loans will rarely offer a redraw facility.
- 80% maximum loan amount: Irrespective of the loan type, lenders will allow you to borrow up to 80 percent of the property value. Loan amounts beyond this is an exception to the rule.
- Interest only repayment: Variable loans often allow interest only options up to five years while fixed loans allow interest only term matching the fixed rate term. In a line of credit, there are no required repayments as long as the outstanding balance doesn’t exceed the limit.
- Additional Repayment: Line of credit and variable loans often allow additional repayment options. With a fixed loan, the lender sets a limit on the amount of the maximum repayment per year.
- Mortgage Offset: This term is available both to variable and fixed loan terms.
Low Doc Loan Options
Low Doc options are available on the following home loans:
- Standard Variable Rate Home Loan. A standard variable rate provides a competitive rate for loans and offers flexible features depending on the borrower’s needs.
- Fixed Rate Home Loan. An investment home loan or fixed rate home loan can range from one to five or seven years. Choose a loan that suits your budget and helps you plan your finances.
- Base Variable Rate Home Loan. This loan offers a low introductory rate without any loan service fees for the entire loan term.
- Line of Credit Home Loan. A line of credit home loan is the best choice for those looking for a way to combine a home loan, savings, and daily spending.
Every lender charges a different fee, but here’s an idea on how much you will need to pay for your loan.
Low doc home loan fees often include the following:
- Loan Establishment Fee - around $995.
- Loan Maintenance Fees - most lenders charge in the region of $10 per month.
- Settlement Fee - charges for this service are usually around $150.
How Do I Apply For A Low Doc Loan?
Just like an ordinary loan, you need to submit certain information in a low doc home loan application.
Take note of these tips to increase your chances of getting approved for a loan:
- Use business bank statements and business activity statements to highlight a high turnover
- Maintain a favourable asset to income ratio. As a rule of thumb, the ratio should be 2:1. You should have $200,000 in assets for a $100,000 income.
- Comply with all the requirements and include your ABN and GST, if applicable.
- Have a clean credit history. If you have defaults, make repayments six months before your loan application.
- Present a credible income based on your age and industry.
- Know how much you can borrow based on your requirements.
If the entire process seems complicated or tiresome, get in touch with us - Find a Better Rate. Our mortgage specialists will assess your financial capacity and find lenders who are willing to finance your loan.
What are the Hidden Catches with Low Doc Lending?
Although this type of lending is available, depending on who you speak with and which lenders you are considering, there can be some very expensive options. This can deter self-employed applicants to second think their decision of purchasing the property because it is simply just not affordable.
We have years of experience in Self Employed lending and understand that there are banks that will charge you an interest rate anywhere between 8-12% interest, an application fee of up to 3% (on half a million dollars, this equates to $15K) and then charge you up to $50 per month as a service fee.
We have actually done some homework and found that people applying for these types of products are actually more likely to repay a home loan, than your standard PAYG applicant.
Always ask your lender for their fees and charges for a more accurate estimate.
You can always ask one of our mortgage specialists to break down the fees for you. They will always search the market to find a lender who offers the most cost-effective price in terms of both fees and interest rates.
List Of Banks That Offer Low Doc Home Loans
Here are some lenders who offer a low doc home loan:
- Advantedge Financial Services. Most of the low doc home loans at 60 percent of the property value and will require a Lenders Mortgage Insurance.
- AMP Bank. This lender offers a 100 percent offset option, but their main target is borrowers with proof of income.
- ANZ Bank Limited. This bank has a “Lo Doc 60 Product” and they have a system to assess your income based on your BAS. Unfortunately, loans over 60 percent of the property value are harder to get.
- Homeloans Ltd. This lender has a diverse funding line, and this is one of the strong non-bank lenders offering low doc loans.
- Members Equity Bank. This firm owned by Industry Super Holdings focuses on no-frills banking products and low doc loans.
- Pepper Home Loans. This non-bank specialist caters to people rejected by banks. This lender charges interest rates based on how risky an applicant is.
- Rams Home Loans. This company offers different credit guidelines and entertains more loans compared to other lending facilities.
- Resimac Limited. This non-bank lender offers low doc loan types for borrowers with arrears and defaults on their credit history.
- Suncorp Bank. They offer a competitive policy for loans under 70 percent LVR, but they are more conservative when it comes to loans at 80 percent LVR.
Some financial institutions that do not generally offer low doc loans but will consider it for some clients:
- Commonwealth Bank of Australia
- Westpac Banking Corporation
What Loan Amounts are Available for Low Doc Applicants?
We have access to options that gives self-employed applicants the ability to lend up to $1.5M in residential lending based on BAS turnover only and if you are not registered for GST, then we can provide up to $1M based on an accountant declaration only.
No tax returns, profit and loss statements or any other financials are required.
Most lenders that offer low doc lending generally start charging Lenders Mortgage Insurance or risk fees on any low doc loan which exceeds a 60-70%. We also have access to options that provide lending up to 80% under a low doc option without incurring any lenders Mortgage Insurance.
There are no unjustifiable fees, loaded interest rates and these products provide you access to the facilities that a “standard” applicant receives. There are no massive setup costs, you have access to a product that is backed by a major bank and provides all the options that you would receive being a PAYG applicant.
Why Choose Us?
Our mortgage specialists will help you get the best deal.
A self-employed plumber is looking to purchase a home who is registered for GST and looking to purchase a property up to the value of $600K. He is a first home buyer, has been operating for 3 years, but has not completed his last 2 years financials as he is very busy running his business. Business is going well and turnover is definitely reflected in his BAS statements for the last 12 months. He holds a 20% deposit which has been saved from the income received from the business. As long as the income reflected on the annual turnover from the BAS statements stacks up, then this is an ideal customer.
If you were to approach a lender that will consider an application like this, you would probably be looking at interest rates in the 7-8% mark, 3% application fee and quarter or monthly servicing fees.
The option that we have access to will have a $285 setup cost, an interest rate in the low 5's, no risk fees and only one annual fee which covers all other costs. You will have access to an offset account which allows you to withdraw and minimise your interest also.
This is by far one of the markets leading options for Self-Employed/Low Doc applicants and we strongly suggest that you contact us today and see how much you could save.
Use our Loan Comparison Calculator to understand what you could be saving on your low doc home loan.
Ready to Apply?
Call us now and we will help you find a lender that meets your requirements.
Our mortgage specialists will find the most affordable rates for you. Plus, we will take care of the entire application process for low doc home loans.
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