Low Doc Home Loans
What is a Low Doc Loan?
A low doc loan, short for ‘low documentation' loan, is a loan method designed to help people who don't meet the qualification requirements for a conventional home loan to purchase a residential property.
Just as in regular loan applications, a low doc loan requires that the applicant submit their request in written form, however the difference is that the applicant may not have to submit any paperwork as proof of your income, assets or other liabilities. The basic method that low doc loans work on is called ‘self-verification' in which you prove your income without offering the verifying document.
Can I apply for a low doc loan?
Of course you can! Because low doc loans are devised to benefit the people who a level of equity or deposit saved, but are facing trouble in providing evidence of regular income. This usually works for self employed, casual workers. Low doc loans may also be availed by individuals with bad credit history.
Unfortunately, in some cases low doc loans are abused by individuals who deliberately erase their income to avoid tax returns. This is considered an offence and if the person is caught, he/she may be forced to pay penalties and fines that far outweigh any benefits they may have hoped for by violating the law.
What's the reason for taking a low doc loan?
If you happen to fall into the categories mentioned above and would like to purchase a house, townhouse, land or apartment, a low doc loan could be an alternative option for obtaining the required level of financing you need. Make sure that you weigh the pros and cons before making the final major financial decision. This will help you determine if you can afford the repayments. Sometimes extra costs are involved since plenty of lenders charge a premium on the standard interest rate when the basic documentation is not attached with the application. You will also be required to tale pit mortgage insurance, which may add more to the total cost.
Usually 80% of the property value will be covered by the low doc loan. This can be increased if you provide more legal, verified financial documentation.
How many types of low doc loans are there?
There are 3 types of low doc loans. These are self declared income, account statement and asset lend. All three have eligibility requirements that can vary significantly. The details are given below for more guidance.
Self Declared Income:
Self-Declared Income
This is the most common type of low doc loan. In this type of loan, the lender will offer a home loan with no accompanying evidence on a signed declaration of income. In this case, 80% of the property value is loaned. The interest rate here will likely be higher than standard loans.
Account Statement
In this case, you are to give concrete income evidence which may include a signed letter from your accountant. The interest rates are generally in accordance with standard home loans.
Asset Lend
This low doc loan type requires the least amount of evidence from the applicant. Sometimes no evidence of income or even a signed declaration is asked for. It is secured entirely on the value of the said property. This type has a higher interest rate and lower percentage of property value.
Should I be careful about anything?
There are some conditions and extra costs you should try to avoid. For example, higher interest rates, extra and higher fees, and charges along with mandatory mortgage insurance. Sometimes a higher level of existing equity or deposit is asked for. In some cases 20% is not uncommon.
Get a free low doc home loan quote
If you would like to discuss obtaining a low doc home loan or to discuss your other options please call us on 1300 760 718 or fill out the enquiry form in the left hand menu of this page.