A low doc home loan is suitable for investors and the self-employed who need to provide alternative financial records and will go through a separate verification process to full doc home loan customers. Low doc home loans are suitable for those who:
The main difference between a standard home loan application and a low doc home loan application is the verification process. As there is less paperwork for the banks to work with, an alternative proof of income is required.
With a low doc home loan, you are generally viewed as a greater risk to banks. This does not mean you have less chance of securing a loan, however it does mean tighter lending restrictions. You may be subject to a low doc home loan with:
Again, these low doc home loan features will vary from lender to lender. It is important to understand from the outset the deposit you may need when applying for a low doc home loan. Some lenders may require up to a 20% deposit, so showing you have access to this deposit is essential to proceed with the application.
With a low doc home loan, no previous tax returns or company history is required. So what paperwork will you need to provide?
As many self-employed will already know, banks view the self-employed as a greater risk. With greater risk comes some potential drawbacks of low doc home loans. Yet for the self-employed, the pros may far outweigh the cons when it comes to the potential of owning your own home.
No tax returns or financial history required
Suitable for the self-employed
A larger deposit required of up to 20% (varies from lender to lender)
Mortgage lenders insurance may apply for loans over 60% LVR
A potential risk fee may be charged upon application
As much as you’d like your income to be as high as possible on your income declaration, do not inflate your numbers. Be as honest and accurate as possible.
Some banks may wish to see a 20% deposit ready to go with your application. If you don’t yet have 20% saved, it may be best to sit and save a while longer until your deposit builds.
Lenders Mortgage Insurance policy can be a lot tighter with low doc home loans, kicking in at 60% of the purchase price. This is because low doc home loans are seen as a greater risk. Be sure to add this into your calculations.
As part of the income verification process, you may be asked to supply your credit history. Have this ready to go upon application. If you do have some less than favourable credit history, have evidence to support and explain the negative entries on the report.
It pays to do your homework when it comes to low doc lenders. No two banks are the same and some lenders are a lot more open when it comes to low doc applications. The right home loan advisor can help you to find the best lender that suits your needs.
It is important to understand both your financial capacity as a business owner and home owner. What can you comfortably afford to repay? Be sure to take expenses such as insurance, rates, water and maintenance into account. The home loan itself is just one expense when owning your own home. The more you know and understand your financial capabilities and restraints, the better.
At Organic Home Loans, we are here to assist you in making the process of securing a low doc home loan a straightforward one. We cut through the red tape and provide you with the facts. The more informed you are about banks’ expectations and requirements, the greater your chance of a successful outcome.
Don’t let paperwork stop you from owning your own home. Speak to our home loan experts today.
