Low Doc Loans
Low Documentation (low doc) Loans were introduced in the late 1990’s to provide finance solutions to people who could not fully verify their income with supporting documentation.
Low doc home loans have accounted for approximately 20% of all loans generated by early 2010. Low doc loans have become high demand by self employed borrowers who cannot supply their tax returns for many reasons. These reasons include, not having one’s financial records prepared at the time of applying for a loan, having complex financial structures with many paper write off expenses, having income streams which were only seasonal, and a business income which consisted of large amounts of cash income which were not reflected in a person’s financials.
Many brokers and financial institutions tend to refer to Low Doc or Lo Doc loans not as a loan product, but rather a loan policy. This is because many lenders are treating these types of loans similar in pricing to and assessment to full doc loans.
What is low doc home loan?
A low doc home loan is a loan product or policy which requires less income paper work than a normal type of loan. When you borrow money from a lending institution for the purpose of residential property or consumer purpose use, the lender has to conduct an affordability test (serviceability). With a low doc loan, the lender uses a declaration of income made by the borrower to conduct an affordability test. This declaration of income document is a template provided by the lender within the loan application. The borrower completes this form and records their income declaration.
As an example, if a borrower states his income at $90,000p.a. on a low doc declaration, then that is the figure the lender uses to determine his borrowing capacity when assessing a loan he has applied for.
However, post 2008, and the advent of the global financial crisis, some lenders have asked for low doc loans to be supported with Business Activity Statements. This has become known as Low Doc with BAS. In this case, the lenders use the previous 4 quarterly business activity statements to determine the turnover of a person’s business. After determining the previous 4 quarters income turnover, lenders assume the client’s income to be no more than 50% of the gross turns over of the business.
When lenders consider a person’s income without the need for Business Activity Statements, the process is then known as a Low Doc loan without BAS. This is the more popular of the 2 options currently available.
Is a Low Doc Loan more Expensive?
When low doc loans were first introduced, they were more expensive than the normal loan. Initially low doc loans were usually 1% higher than the standard variable loans. This began to change in early 2003 when lenders began to realize this market was quite significant and wanted market share. Hence lenders began to compete for this type of business and began to offer discounts to attract these customers. This includes Professional Package Mortgage Loans with considerable discounts. With many lenders, there is almost no difference in the interest rate between a fully documented loan and a low doc loan.
In most cases, Low doc loans also attract Lenders Mortgage Insurance (LMI) where the Loan to Valuation Ratio (LVR) exceeds 60%. The LMI premium for a Low doc loan is worked out using a sliding scale. The higher the LVR, the higher the premium calculation. However, there are instances and lenders that do not charge Lenders Mortgage Insurance on low doc loans. This is especially such when the LVR is below 60%. To get an idea of the cost of LMI, we invite you to use our LMI comparison calculator.
Low Doc up to 80% LVR without LMI?
There are lenders who lend up to 80% LVR, and do not charge any LMI. In this case, the rate is more higher than most conventional low doc loans. You will find that the low doc lender is what is commonly referred to as a non conforming lender.
Maximum LVR Low Doc Home Loan?
The maximum LVR for a residential low doc home loan is 85% LVR up to $1million. As at 80% LVR, many lenders can lend you up to $2million. If you were to look at at an 60% LVR you could increase the borrowing limit to $4,000,000.
If a client has multiple properties or securities, then we could place different properties with different lenders to gain maximum exposure under Low Doc Policy.
Can I borrow over 80%LVR on low doc home loan?
This policy is commonly referred to as low doc over 80% LVR. This possible with 2 lenders in Australia in 2013. The maximum LVR one can borrow with a low doc loan is 85% LVR.
It is worth noting that the criteria for this type of loan are very stringent. For example, the lender requires that a borrowers ABN be registered for GST for more than 2 year’s, and also has clean credit. The interest rate in this is much more expensive than a low doc loan which is under 80% LVR.
What kinds of loan products are available with a Low Doc Loan?
Low doc loans can be raised in all type of loans. These include;
- Low Doc Honeymoon Loans,
- Low Doc Basic Loans,
- Low Doc Lines of Credit,
- Low Doc Professional Package Loans,
- Low Doc Fixed Loans,
- Low Doc Standard Variable Loans,
- Low Doc 100% Offset Loan,
- Low Doc Construction,
- Low Doc Business Loans,
- Low Doc Commercial loans
Can I have a Low Doc Loan in the name of a Company or a trust?
Low doc loans can be done in the names of companies, various types of trusts, and individual names.
It is worth noting that not all lenders will take on low doc loans in the name of a company or trust. Some lenders will possibly lend in the name of a company, but not a trust. For other lenders, they will do the complete opposite and do a low doc loan in the name of a trust and not a company.
The consultants at Mortgage Providers can help structure a low doc loan which mirrors the cost of a full doc loan without the need to show any form of documentation.
If you’re a self-employed person, or someone who owns a business, getting a home loan can be difficult. A normal home loan requires tax return and financial statements that you might not be able to get. However, there are other options available to you. Several lending institutions provide low doc loans in Sydney. These home loans require low documentation and are very suitable for people who’re self-employed or running a business. These are a recent addition to the loan market in response to the increase in number of entrepreneurs, freelancers, and other such professionals. At Mortgage Providers, we will help you find the best loan for your financial situation.
What You Need to Know
Until recently, low doc loans in Melbourne had higher interest rates than normal loans. However, that has changed. Today, the interest rates are similar or on par with the rates of traditional home loans. The lenders have different practices in place that would allow them to choose who to lend the money to. As most self employed professionals and business owners don’t have a steady and reliable income as salaried individuals do, deciding whom to lend takes some time. As low doc loans usually have high risk, lenders have placed certain limitations on these loans.
- You’ll have a lower LVR. Lenders might only provide about 80% or less of the property value. There are some lenders who might provide more, but they might charge a higher interest rate.
- There might be slightly higher interest rates because of the higher risk that the lenders take.
What You Might Need
There are some documents you will need when you apply for this loan. While you won’t require a tax statement and other such proofs, you need to show that you can pay the money back and are in a relatively stable financial situation. To apply for low doc home loans in Melbourne, you’ll need
- An Income Declaration that’s signed by the borrower
- Your Australian Business Number
- Your Business Name
- Your Business Activity Statements over the period of last 12 months or more
- A letter from your accountant
How Will We Help?
There’s a lot of controversy surrounding low doc home loans in Sydney. People assume that the banks, lending institutions, and brokers like us try to exploit customers that need a loan with low documentation. At Mortgage Providers, we handle our business with the best interest of the clients in mind. Our experts will make sure that your financial ability is considered before they recommend a loan and a loan amount to you. They will ask the right questions to you to ensure that you don’t borrow more than you can pay back. Before you start looking for the loan, we recommend that you ask yourself the following questions:
- Is your financial condition stable? And will it be for the foreseeable future?
- How much money do you need?
- What time of loan do you need?
- How long a loan period would you need?
- Can you offer some security to the lenders?
After we understand the answers to these questions and all the right documents ready, we will recommend loan offers from different lending institutions that would suit your needs.
If you want to know more about our low doc home loans in Sydney, all you need to do is get in touch with us at Mortgage Providers. You can do that by filling in this contact us form or calling us at 1300 65 6600. You can ask for free expert advice or enquire about the loan. We will reply as quickly as possible with answers.