Monday 13th May 2019

Low Doc Loans: What Are They, and How Do They Work?

Low Doc Loans: What Are They, and How Do They Work?

In recent months, Australian banks have tightened their credit standards amid concerns around increasing property prices, household debt and pressures from the royal commission. This means that getting a loan might be even more difficult for borrowers.

If you’re struggling to get a traditional loan, then perhaps a low doc loan is an option you could consider gaining funds.

What is a Low Doc Loan?

A low documentation or low doc loan is a type of mortgage that requires a minimal amount of documentation. Low doc loans are often used by borrowers who do not have sufficient paperwork to apply for traditional mortgages. These include self-employed individuals and full-time investors who have no payslips to prove their income.

Who Can Get a Low Doc Loan?

Low doc loans will generally be granted to borrowers who fulfil the following criteria:

  • a satisfactory credit history;
  • borrowing a maximum of 80 percent of the property value; and
  • having been self-employed for at least one to two years.

Some documentation that borrowers need to apply for this type of loan may include an active Australian Business Number (ABN), Business Activity Statements (BAS) for the past 12 months, and an Income Declaration Form to self-certify your eligibility for the loan.

If you don’t fit these criteria, you might be more well-suited for alternatives such as non-conforming loans and no doc loans – talk to your broker to discuss your options.

What Should I Know about Low Doc Loans?

Low doc borrowers are seen as a higher risk investment to lenders – this is why low doc loans tend to be more expensive than standard loans, with higher interest rates and fees. You should also consider Lenders Mortgage Insurance (LMI), which can apply when you borrow a higher amount against the property’s value.

Some lenders will allow you to switch to a full doc loan if you can verify your income and/or if you have two years of good conduct, demonstrated by on-time repayments.

Need more info on low doc loans? Contact us for an obligation-free chat.