Are you applying for low documentation loans? Learn more about them and the factors to consider when applying for low doc loans.
Emergencies happen, and when they do, it could be that you have very little money or none at all to fix until your next payday comes in. With no bank savings to fall back on, and such little time to make quick decisions, especially if it’s a medical emergency, where would you get the stash of cash you need? When you’re a small business owner or self-employed with no tax returns or financial documents to submit to banks, low doc loans can be the most logical, if not the only choice.
While you may be in a rush to apply for the first low doc loan option you come across there are important things to consider when choosing the most appropriate loan alternative for you.
What is a low doc loan?
A Low Doc Loan is an otherwise normal home or investment loan that does not require the normal income verification such as tax returns, financial statements or payslips.
Instead of providing these documents the lender will ask you to sign a form called an income declaration on which you state your income. The lender then uses your stated income in their assessment.
Here are some of them:
Eligibility
Not everyone can apply for low document loans. Only self-employed borrowers who have legitimate reasons for not submitting proof of income, such late filing of tax returns, can apply.
Low doc loans do not require the usual documents used by banks and big lending forms to verify income, such as payslips, financial statements and tax returns. Instead, you are only required to sign an income declaration form that will be the basis of their assessment. Most lenders ask low doc loan applications to declare their assets and liabilities and some lenders may ask you to include this in your income declaration form. During the assessment, lenders usually check whether your income, assets and your age match.
We at Wealthy You, our team of loan specialists strives to keep the proof of income and documentation at a minimum. If an income declaration is the only thing you can present, well, that’s enough for us! Who knows? You may qualify for a loan of up to $3 million.
Interest Rate
One of the big factors to consider when applying for low doc loans is the interest rate. It’s important to shop around and make sure that you get the lowest one available in the market, without the hidden charges.
Low doc loans offered by some banks and financing institutions may come at extra costs because of reduced financial documentation. One strategy is to present more financial document to lower the interest rate. You may be required to pay extra fees and charges and higher deposits. Others require security such as investments, cars and other properties. But you want none of that; we can offer you the most competitive rates suitable for self-employed borrowers without the heavy paperwork. We are also known for fast turnaround and processing times.
Credit Rating
Finding low doc loans with lower interest rates is difficult when you have a bad credit rating. You may need a little more time to get your good credit rating back, as it would depend on your credit payments. But, if you don't have the luxury of time or the money to pay them as soon as you can, the Australian Lending Centre offers low doc loans for people with bad credit. You may want to avail of our low doc car loans, home loans and personal loans. You may also try our low doc investment loans to support your dreams.
FREQUENTY ASK QUESTIONS?
Are low doc loans only for the self employed?
Yes, due to changes in the NCCP Act, lenders will only accept self-employed borrowers for their low doc loans. However, there are some lenders who offer PAYG loans with reduced income evidence.
The reason why lenders only accept self-employed borrowers is that there are legitimate reasons why they may not be able to prove their income, such as not having completed a recent tax return. For a PAYG borrower there are far fewer legitimate reasons, so lenders ask why they would not provide their payslips as proof of income!
Do I need to tell my lender about my assets & liabilities?
Yes, with most lenders you will need to provide a detailed assets and liabilities (A&L) statement. Some lenders, such as ANZ, even include this on their income declaration form.
Lenders look to make sure that your income, age, assets and liabilities all match up. For example, a 50 year old with a declared income of $300,000 p.a. but with few assets would raise eyebrows!
What is the difference between a low doc and a no doc?
Typically, with a No Doc Loan you will not need to provide the full details of your assets and liabilities, nor will you have to declare your income!
Although there is variation between lenders, you will normally just sign a declaration confirming that you believe you can afford the indicative loan repayments.
No Doc lending is usually the domain of expensive private lenders that also do not care about your credit history. Rates for these private lenders can range from 2% to 6% per month, which is up to 72% p.a.! Unfortunately that was not a typo!
However, there are one or two lenders that are “Prime” No Doc lenders, which will not charge a higher rate than their normal Low Doc Loans. These lenders will do a credit check, investigate the repayment history on your current loan and will usually not consider any defaults.
No doc loans must not be regulated by the NCCP act. This means that they must be predominately for business or investment purposes. Note that investment in residential real estate is considered to be regulated so is not accepted for a no doc loan unless the borrower is a company or a trust.
Typically the cheapest and best No Doc Lenders will lend up to 75% of the value of your property.
What does LVR mean and how does it affect the price of my loan?
LVR is short for Loan to Value Ratio. The LVR is used by lenders to determine the risk of your loan and to determine whether or not it should be approved.
The LVR is calculated by dividing the loan amount by the lesser of the value of your property or the purchase price (for purchases only) and then multiplying by 100.
For example a loan of $500,000 on a property worth $1,000,000 would have a 50% LVR. A loan of $1,000,000 secured by three properties worth $500,000 each would have an LVR of 66.67% (1,000,000 divided by 1,500,000 x 100 = 66.67%).
The majority of lenders consider 60% LVR to be safe with Low Doc Loans. Between 60% LVR and 80% LVR the lender may require that your loan be insured by a Lenders Mortgage Insurer (LMI). Over 80% LVR is considered to be a high risk and the choice of lenders may be limited.
How much can you borrow with a low doc loan?
The maximum any lender will approve on a low doc loan is 90% LVR (90% of the property value).
This is a more expensive loan, often referred to as a high lend loan. The cheapest Low Doc Lenders will not lend more than 80% LVR.
Typically if you are borrowing up to 60% LVR you have no maximum loan amount! In fact you can borrow $2,000,000, $10,000,000 or even more, all with no income evidence!
If you are borrowing 80% LVR then most Bank Low Doc Lenders will restrict your loan to $1,000,000.
With No Doc Loans most lenders will restrict your loan to a maximum of 75% LVR or $1,000,000, whichever is the lesser.
Why should I use a mortgage broker for a low doc?
Because of the large variation between lenders it is essential that you talk to an expert to find the best deal for you. In fact, with Low Doc loans there are now basic loan and professional package discounts available from some lenders, just like with Full Doc loans!
There are also major differences between lenders in their LMI premiums, application fees and valuation fees that they will waive. This information is not published by lenders, but it is known by mortgage brokers!
Our services are free for standard residential loans! So you get to choose from the major banks and other low doc lenders without paying any more for having the help of an expert!
Do you need an ABN?
Yes, due to recent changes it is now essential for you to have an active ABN to get a Low Doc Loan. However for a PAYG low doc or No doc, you are not required to have an ABN.
Does the ABN need to be GST registered?
Australian Taxation rules require that if your turnover is above a particular threshold then your ABN must be registered for GST.
This is important to a lender because if you declare an income of $200,000 and this is above the threshold for GST registration then the lender would ask how you can earn $200,000 without being registered for GST. This would result in the loan being declined.
Currently, if your turnover is greater than $75,000 then you are required by the ATO to be registered for GST.
How long does the ABN need to be registered?
The majority of lenders require that your ABN be registered for at least two years. Some lenders have a shorter ABN registration period requirement such as one year or even one day!
For a No Doc loan you will typically require an ABN to be registered for one day or will not need an ABN at all.
Does it matter what type of ABN I have?
All types of ABNs are acceptable to most lenders. Sole traders, partnerships, companies and trusts are fine. It can get difficult if you are a shareholder but not a director of a company because it is more difficult for lenders to identify that you are associated with that company.
The same is true if you are the beneficiary of a trust but not the trustee or director of the trustee company. These situations are assessed on their merits by lenders.
What are the common reasons low doc loans get declined?
The common reasons why low doc loans get declined are:
❌ The income stated is not enough to service the loan.
❌ The location of the security property.
❌ Failing the lender’s credit score.
❌ A poor credit history.
If you have any more questions or need further assistance, feel free to contact us. We're here to help!
info@wealthyyou.com.au
☎️ (02) 7900 3288
⏲️ Monday to Friday, 9:00 AM – 6:00 PM
️ Ground Floor 3, 189 Kent St, Sydney NSW 2000
