Low Doc Loans
Self-employed people in the past faced greater obstacles when obtaining financing through a standard self employed loan. This is because banks customarily prefer to lend to borrowers with verifiable sources of income such as PAYG employees.
Traditional loans place significant importance on income and financial documentation, locking out those self-employed people who cannot provide them. These days however low doc loans are the best recourse for these applicants.
This is in realization of the opportunities of serving this large market. This has been done through specially designed low doc loans, which cater to those who cannot provide sufficient paperwork for a standard loan. It will be especially beneficial to those self employed individuals who do not possess financial or tax records.
The major difference between standard loans and low doc loans is the level of documentation required for loan approval. Borrowers in most instances receive the benefits of a traditional loan when they apply for a low doc loan. They are available through bank and non-bank financial institutions.
low doc home loan
- A clear credit history is required, although some lenders will allow up to two paid Telco type defaults that are under $500
- A signed income declaration by the borrower
- Rental statements or Rental Appraisal letter confirming any rental income
- Some lenders will require an accountant’s letter confirming ability to repay the loan
- An Australian Business Number registered for a minimum of 12 months, or 24 months in most instances
- Business Activity Statements (BAS) for the last 12 months
- Australian Tax Office Portals to confirm the BAS payments have been paid
- 3 months bank trading statements
- Copy of the Contract of Sale if purchasing a property
- Copies of normal identification documents such as a Drivers Licence and Passport
- If refinancing any debts copies of statements, latest 6 months for mortgages and latest 3 months for personal loans or credit card debt
This is in the after math of the global financial crisis, which saw a raft of regulations that tightened credit for most borrowers. Despite this, 80% financing is still available through low doc loans lenders.
For Low Doc Home Loans
Providing extra information when it is required is still advantageous compared to those of a standard home loan. Mainly because when applying for a standard full doc self employed home loan you are required to provide full documentation including company tax returns with full financial reports and personal tax returns to obtain the loan.
Low doc loans are generally mortgage backed. Most lenders will require mortgage insurance for financing levels of more than 60%. However, some lenders will willingly absorb this additional cost.
Most lenders will also demand an ownership of more than 20% in the property as condition for financing. Other lenders may require a much higher ownership level than this.
Applicants with a clear credit history can now access low doc home loans at normal rates of interest, as long as they do not have a poor credit history. However those with impaired credit histories are not entirely locked out by low doc lenders. This is because specialised low doc loans are available for this category of borrower. Nonetheless they will have to pay higher rates of interest to compensate for the increased credit risk.
Despite the less stringent rules, low doc home loans are just as useful as any standard loan. Easier application procedures and higher loan approval rates do not diminish the importance of these types of loans. They can be used by both individuals and businesses to finance;
- commercial or residential property transfers and purchases.
- home renovations
- purchase investment property (residential or commercial)
- Cash out for any worthwhile purpose
Low doc home loans can be relied upon to provide critical financing without the hassles of lengthy paperwork. Their higher approval rate is also more preferable to the ambiguous loan approval procedures of standard home loans.
Previously many low doc loan lenders only required the borrower to sign an income declaration to confirm their income. Nowadays they are midway between standard loans and low doc loans. Very few lenders now offer a low doc home loan without requiring BAS documents.
Low doc home loans are an important asset when it comes to quick and guaranteed financing for individuals and small businesses. They may be the only option for self-employed persons and contractors who don’t have the required documentation to meet standard self employed home loan application policies.
Low doc loans allow people to borrow money for worthwhile purposes like purchasing property that may otherwise not be possible. When using lo doc loans remember to borrow within your practical budgetary financial limits, don’t get in over your head.