LOW DOC LOANS

Low Doc loans or low documentation loans are a flexible loan option for the self-employed and are typically designed for borrowers who are not in a position to provide tax returns and financial statements as evidence of their income. Self-employed applicants include small businesses, contractors and ABN holders. Banks rely on the borrower to provide self-verification of income without the lender using tradition payslips and employer verification. Applicants are not required to provide evidence of their income however the lender may request that your accountant sign off on the declared income or require your Business Activity Statements (BAS) to reconcile a borrower’s business turnover against declared income. Normal credit assessment will be carried out to confirm you can afford to the loan and service the repayments going forward on the income you have declared. Low Doc lenders usually require a 20% deposit of the purchase price on top of stamp duty, legal and applications fees, otherwise you may be required to apply for Lenders Mortgage Insurance (LMI) which insures the lender, not the borrower. Higher interest rates, larger deposits and sometimes Lenders Mortgage Insurance (LMI) apply to low doc loans because lenders believe they are higher risk of default. As a guide, lenders usually want to see the borrower has been self- employed for at least 12 months and have a GST registered ABN for 2 years.

Upside

  • Reduced requirements for proof of income

Downside

  • Higher interest rates
  • A larger deposit of 20% to 40% of purchase price will be required.
  • A one off payment for Lenders Mortgage Insurance (LMI) will be required if borrowing 60% to 80% of the purchase price, depending on the lender.