The increasing credit regulation has seen many people predict the death of Low Doc loans. Independent Mortgage Broker, What If We Finance, states that despite the tighter regulation and global turmoil as a result of COVID19; Low Doc loans are a vital tool if used correctly.
A low documentation (Low Doc) loan is a mortgage that can be taken out using different income verification documentation, to those that are required a full documentation (full doc or fully verified home loan) home loan. These are often used by self-employed borrowers, who may find difficulty in providing conventional proof of income.
Traditionally, borrowers that may not have completed their tax returns or have conventional proof of income available, will therefore struggle to obtain finance for many reasons. This is where Low Doc loans are a useful option.
Low Doc loans may still be used if we can certify income by other means, such as:
- Accountants’ declarations
- Business Activity Statements (BAS)
- Trading or Bank Statements
Generally, lenders also require an Australian Business Number (ABN) to be registered for GST, with a minimum ABN registration of 6 months.
Low Doc loans do not mean that income verification disappears, it is just that there are alternative ways to verify income. Lenders recognise individual circumstances are different and alternative approaches are used.
With the growing number of self-employed people in the Australian economy, Low Doc loans are gaining popularity. Low Doc loans are designed to assist borrowers who by virtue of their employment, and do not have the same level of income verification as PAYG applicants or those in permanent full-time employment.
Low Doc loans are designed to assist those with existing equity (generally 20% to 40% of property price is recommended). And those who have trouble showing evidence of regular income. Different lenders have different rules about Low Doc loans, so it is best to contact your Mortgage Broker Melbourne today.
When applying for a Low Doc loan What If We Finance advises to look out for:
- Low Doc loans often have extra costs and interest rates - Finance is about risk reward so the more documentation you can produce the lower the rate. In the current environment you cannot expect low doc loans at close to fully verified loan rates mortgage broker What If We Finance advises.
- Mortgage insurance - Generally Low Doc loans, depending on the Loan to Value Ratio (LVR), may have mortgage insurance apply so there may be higher fees and charges.
- Difference between Low Doc and Private loans - Private loans are often issued by private lenders and generally are short term (6 to 12 months), can have higher fees than Low Doc loans and need a predefined exist strategy such as selling a business, property. Conversely, Low Doc loans can have longer loan terms and do not need an exit strategy.
- Credit file and repayment history - Your credit file and repayment history of debts will be reviewed in detail by the lenders. Like fully verified loans, there are many factors which help determine a lenders’ decision about the success of your Low Doc application. Lenders are more likely to approve applicants with a good credit rating who can demonstrate a strong asset to income ratio and whose property is perceived as easy to sell. This means lenders may not accept rural properties as security.
- Refinancing tax debt - Low Doc loans can be used for a number of purposes but when refinancing tax debt you may need to pick the appropriate lender.
Not all lenders or mortgage brokers offer Low Doc loans, so contact What If We Finance to find out more.