Low doc loan or low documentation loan is a specialised product in which a borrower does not have to submit the proof of income, such as salary slip or tax return that is normally required to apply for a loan. These documents are required to prove that you can make the repayments.
It is specifically designed for self-employed individuals and business owners who can afford to pay the loan but do not have a regular income stream. Instead, they sign a declaration form, affirming they have assets and income to make repayments. However, lenders do carry out credit assessment to confirm if they can afford a loan.
Because of low documentation requirement, the interest rate and fees on a low doc loan are relatively higher. Borrowers are also required to pay lender’s mortgage insurance (LMI) with it even if they are borrowing as little as $125,000. LMI provides protection to the lender in case borrower defaults on a loan.
People who apply for this loan have equity or savings, but they cannot give proof of a regular income. To apply for this loan, a person must have a deposit of 20 percent of the purchase price. Normally, ABN Holders, contractors, and small businesses apply for this loan to meet the operational requirements.
Those who are self-employed must have a valid ABN, running for a minimum of 2 years and be registered for general sales tax. However, there are some lenders who accept ABNs even if it is has only been registered for a day.
Why Do People Apply for Low Doc Loan?
Apart from not having a proof of income, there are a number of other reasons why people apply for a low doc loan:
- They might have a complex business structure
- There are large deductions in a business, such as depreciation
- The income of a person might have increased since his last tax return
- The tax returns of a person are not up to date
- The income earned from a trust is distributed among family members
There are a number of businesses where earnings are made in cash, which makes it difficult to show tax returns. For example, businesses like retail outlets, tradesmen, taxi services, or restaurants have cash income. They would not qualify for the debt if they show their tax return, because it will show low income that would appear insufficient to be able to service the debt.
Lenders Offering Low Doc Loan
Given below is a list of some of the lenders who offer low doc loan in Australia
- National Australia Bank – offers National Flexi Plus Low Doc and Tailored Home Loan Low Doc
- Australia and New Zealand Banking Group Limited – has various low doc loan products, including Professional Benefits Equity Manager, Standard Variable Rate Low Doc 60, Equity Manager Low Doc 60, Breakfree Equity Manager, Professional Benefits Standard Variable Rate, and Professional Benefits Standard Variable Residential Land Loan
- Suncorp Australia – is offering three different types of loans, Low Doc Standard Variable Rate, Low Doc Asset Line, and Low Doc Back to Basic Variable Rate
- George Bank – offers Low Doc Variable Rate, Low Doc Portfolio Loan Variable Rate, Professional Benefits Low Doc, Professional Benefit Low Doc Portfolio Loan
- Westpac – is offering a number of low doc loan products, including Low Doc Equity Access Loan, Low Doc Variable Investment Property Loan, Variable Rate Investment Property Loan Low Doc, Premium Option Home Loan Low Doc, Premium Advantage Low Doc Variable Investment Loan, and Premium Advantage Low Doc Rocket Repay Home Loan
- Commonwealth Bank of Australia – has Low Doc Standard Variable Rate Loan, Low Doc Line of Credit Residential Equity Loan, MAV Package Low Doc Standard Variable Rate, and MAV Package Low Doc Rate Line of Credit Residential Equity
There are so many other lenders who are offering this product too, therefore speak with our team of experts at Hunter Galloway if you plan to apply for a low doc loan. We can guide you in the right direction and help you choose the right product, keeping in mind your financial goals.