A low documentation home loan, also known as a low doc home loan, is designed for people who are self-employed. They do not have a regular job or any other traditional means of income. This is why banks allow them to borrow loan without submitting financial statements or tax returns. When applying for a low doc loan, a person has to take two things in order to apply for low documentation loans:
- To sign an income declaration
- To provide reduced income evidence, either as an accountant’s declaration or business account statement (BAS).
Lenders accept these documents as proof of income.
What Should You Keep in Mind When Applying for Low Doc Home Loan?
It is not easy to set up a low doc loan. Every lender offers a customised package with different requirements and interest rates. You should keep the following costs in mind when applying for a low doc home loan:
- Lender’s Mortgage Insurance (LMI) – You normally have to pay this if you borrow more than 60 percent of the property price.
- Larger Deposit – Banks usually require a minimum of 20 percent deposit if you wish to qualify for a low doc home loan.
- Higher Interest Rates – The interest rate will vary from one lender to another based on their verification process and your supporting documents. There are some lenders who charge a very low interest rate, similar to a full doc loans.
How to Get Approval for Low Doc Home Loan?
It is not an easy task to get approval for a low doc home loan. Sometimes, it can get really hard to get an approval. However, you should use the following steps in order to find the right lender who may approve your loan:
- Search the market to identify the lender who will qualify you for a low doc home loan. While carrying out the search, you must be very clear on what you are looking for and what documents you need to provide in order to qualify for a loan.
- Choose a bank that charges the lowest LMI premium, fees, and interest rates
- You should present your loan application in such a way that a lender finds it favourable
You must bear in mind that a lender always goes through each and every document while assessing your application. Therefore, only submit those documents that they need and do not try to include unnecessary information, as it may reduce your borrowing capacity.
Why do Banks Require the Business Activity Statement?
Back in 2000, the Australian government introduced the business activity statement, also known as the BAS. It enables businesses to report on their PAYG and GST tax obligations.
Due to the credit crunch of 2008 and subsequently, the introduction of the NCCP Act in 2010, lenders are under obligation to do verification of your income for a low doc home. The purpose of BAS is to enable lenders to verify the turnover of clients and reduce the overall risk associated with a low doc home loan.
There are some lenders who need to have a BAS from the last 12 months. However, there are others that only need to have one or two BAS in order to evaluate your income.
Accountant’s Letter for Low Doc Home Loan
There are some lenders who also take the accountant’s letter as a substitute to BAS. However, it should be signed by a qualified accountant who gives confirmation that the value of your annual net income is correct and true. It serves as a guarantee for your low doc home loan. This letter is only valid for a period of 60 days from the date it is signed.
Find a Suitable Lender
Every lender has unique lending criteria, between LMI, interest rates and a minimum deposit requirement, they each vary from one lender to another. Therefore, whenever you apply for a low doc home loan, it is very important to talk to a mortgage broker. We can guide you in the right direction because due to years of experience in the market and we also keep track of the different lenders and the packages they offer. You can also carry out research on your own to figure out the most suitable package keeping in mind your financial goals.
Chat to Hunter Galloway today on 1300 088 065 or email Nathan at Nathan.Vecchio@HunterGalloway.com.au