What is a low doc home loan?
A low-doc or no-doc mortgage is ideally suited for investors or self-employed borrowers looking to refinance, purchase or renovate.
Low Doc home loans are often perceived as higher risk by the lenders, because the income of the borrower cannot be substantiated by conventional means. As a result, a Low Doc loan would usually have a higher-than-average interest rate; plus more limitations in terms of the maximum Loan to Valuation Ratio (LVR), available loan features and package discounts.
A self-employed borrower would typically need to provide proof of income using a combination of the following:
- Proof of ABN and/or GST registration
- Business Activity Statements (BAS)
- Business Account transaction statements
- Accountant's letter
- Personal tax returns
Before applying for a Low Doc home loan, it's worth sitting down with an experienced mortgage broker to work out your net income and the amount of loan you can realistically afford to service on a regular basis. Doing this could help to avoid disappointments, plus you could also uncover more lenders or product choices which you were not previously aware of.
What are the pros and cons of low doc loans?
Pros:
- Simple income declaration form
- Alternatives to tax returns as income evidence are available
- Fully serviceable loan options, redraws, line of credit, variable or fixed rates
- Principal & Interest or Interest-only loans
Cons:
- Generally a higher interest rate and potentially fewer features
- Not every bank or lender offers low doc loans
