Low-doc Home Loans: An alternative for self-employed

Low-doc home loans are a unique product designed for those who do not have access to the regular verification paperwork required to apply for a home loan.

Lenders have a responsibility to ensure that borrowers can repay any loan that they approve, so they are still required to prove that a loan is “not unsuitable” for the borrower and their circumstances. It’s important to note that low-doc home loans do not require less documentation than a regular application, just different forms of documentation.

Who is eligible for a low-doc home loan?

In compliance with the NCCT Act, lenders are only able to provide low-doc loans to self-employed people with an ABN. They are only suitable to applicants with non-standard income sources. Those who are able to provide regular proof of income are not eligible for low-doc loans.

Which lenders offer low-doc loans?

Each of the Big 4 Banks offer a variation of low-doc loan products, as do a number of smaller independent lenders. Although your loan application may be declined at one lender, Your Finance Adviser can help you to find a lender with a product more suitable to your needs.

What type of documents are required?

As with any financial product, you will be required to provide 100 points of ID, details of your assets and liabilities and proof of security. This includes:

• Drivers’ license or passport and Medicare card
• Last 3 months of statements from any savings accounts
• Last 3 months of statements from any loan or credit facilities
• Proof of ownership of assets offered as security, such as Certificate of Title for a property

The difference in documentation lies with the income validation. Whereas a regular self-employed home loan would require 2-3 years of personal and business tax returns, a low-doc home loan only needs a statutory declaration or “income declaration”, or letter from an accountant to verify income. This requirement differs lender to lender, so it’s best to speak with a low-doc loan specialist to ensure you meet requirements before applying.

What are the limitations of a low-doc home loan?

There are two major drawbacks for this type of loan:

1. The interest rate is usually higher than other loans, as the risk is higher to the bank.
2. The maximum LVR is generally non-negotiable, which means you are ineligible for LMI and can only borrow up to 80% of the purchase price for a residential property.

Are low-doc loans suitable for applicants with a bad credit rating?

Credit rating is an important factor in the approval of a low-doc loan, so it may not be a good option for applicants with a low credit rating. If you have a bad credit rating, speak with Your Finance Adviser to find out which options may be available to you.

Are you self-employed and looking into alternative loan options? Speak with Your Finance Adviser today and let us help you find the home loan option that is best for you.