Low Doc Home Loans were created to specially cater for the self-employed and small business owners in Australia. Low Doc Loans are designed for self-employed people who can well afford a home loan, but can’t give income verification such as tax returns.
Low doc home loans are great for the self-employed particularly if the proof needed by traditional banks such as tax returns or pay slips are not available. Most lenders have either withdrawn from the market or imposed restrictions on borrowers. We understand that small business owners employ a large percentage of the Australian workforce and therefore need to be supported to ensure they can access vital funding to continue to expand and prosper. We understand that it is sometimes not easy to have two years personal tax returns, two years business financials and two year company or partnership returns all up to date. As a guide, Loans can go up to 80% of the value of a residential property.
Low doc home loans are otherwise known as low documentation loans and are a type of mortgage that is available for borrowers who cannot provide all of the regular paperwork required for standard home loans such as tax returns and pay slips.
Loans are designed to assist people who do not qualify for a traditional home loan to buy a property. Low doc (or low documentation) loans still require the application to be made in writing, however you may not be required to provide much of the paperwork that is necessary with standard home loans, such as tax returns.
Non conforming loans are designed to benefit those people who have some existing equity or large deposits saved, and have trouble showing evidence of regular income. This could apply to the self-employed or contract workers. Non conforming loans could also be made available to people with a bad credit history.
Low doc loans are also sometimes abused by people who have income they have omitted to declare to the taxation office. Failure to declare taxable income is an offence and, if caught, offenders are forced to pay penalties that far outweigh the savings they intended to make by breaking the law.
If you fall into any of the categories above and wish to purchase a property, a non conforming loan could be your only option for obtaining the required finance. As with any major financial decision, always weigh up the pros and cons and determine whether you can afford the repayments. There could also be extra costs involved as many lenders will charge an inflated interest rate when standard documentation is not produced on application. Mortgage risk fees or insurance is also a standard requirement with non conforming loans, which adds further to the cost.
Low doc loans generally have certain conditions and extra costs attached, such as:
higher interest rate, although the more financial documentation you can produce, the lower the rate often is additional and inflated fees and charges, compulsory insurance.
higher deposit is required. Often up to 20% of the property value needs to be provided by the purchaser.