Primarily aimed at self-employed borrowers, low-doc loans are unique from full-doc mortgages, as they require less documentation to prove income during the application process.
Generally when you’re applying for a mortgage, the lender will want to see paperwork showing your savings and income history, and thus your capacity to repay the loan.
However low-doc loans, as the name suggests, don’t require as much documentation. For this reason they’re ideal for contractors, property investors, self-employed applicants and those who have fluctuating income streams, as you don’t have to provide evidence (like weekly payslips) to prove your income.
Essentially, these loans cater to those applicants that do not meet the standard lending criteria of a full-doc loan. As a result low-doc loans have allowed thousands of Australians who, for varying reasons, have been denied a standard mortgage, to gain access to credit.
Unlike no-doc loans – which require no paperwork and are therefore deemed to be very risky by lenders – low-doc loans are not usually attached to substantially higher interest rates.
If you can supply sufficient documentation – including Business Activity Statements (BAS), financial statements verified by your accountant or previous tax returns – you should have no trouble finding low-doc loan with mainstream lending rates.
Also, many of the low-doc loans on the market provide free or low-cost access to extra features such as offset accounts, redraw facilities, interest only options and the ability to make extra payments.
Before the global financial crisis, low-doc loans were readily available for borrowers seeking up to 80% or even 90% of the LVR.
However, these days lenders are much more risk averse: currently, you’d be hard pressed finding a bank or financial institution willing you lend you more than 60% of the value of the property, without having to provide significant documentation such as BAS and other accounting paperwork.
Obviously, this varies from lender to lender. For instance, BetterOption Home Loans – Your Mortgage magazine’s 2010 Silver Winner for ‘Best Low-Doc Loan – Non-Bank’ – offers a low-doc product that boasts a competitive interest rate of 6.42% and an LVR of 80%.
Therefore, it pays to do your research, and if possible seek the advice of a qualified, experienced mortgage broker or financial advisor before you make any decisions.