All You Need to Know About Low Doc Loans

All You Need to Know About Low Doc Loans

Does being self-employed mean you’ve got no chance of owning your own home? Not at all! Low doc loans make it easier for those in less common employment arrangements to purchase a property.

If you’re not familiar with low doc loans, what you need to know is that they are often considered the easiest way for those who are self-employed or contract workers to get a home loan.

These loans are designed to make the home loan application process easier for those who aren’t necessarily able to provide the traditional proof of income required for standard home loans. As hinted at in their name, these loans require less documentation than your typical loan. Low doc isn’t no doc, however – you will still need to provide evidence of income in the form of BAS, business account statements or a letter from your accountant.

How do low doc loans differ from standard home loans?

With lower documentation comes less proof of income and more significant risk to lenders. This, understandably, results in low doc loans having higher rates of interest and more fees.

You may find that some lenders will also ask for a higher deposit or lower LVR (loan-to-value ratio) or that you will be required to pay a risk fee (rather than LMI) when going for a low doc loan.

What can you do to maximise your chances of approval?

While getting approved for a low doc loan can be a more difficult journey than getting a standard home loan, it doesn’t have to be a daunting task. Here are some tips to maximise your chances of approval.

1. Make sure your business details are up to date and your financial records are as accurate as possible.

2. Maximise your deposit. The higher your deposit, the better chances you will have of having your loan approved, and the lower the risk fee you will need to pay.

3. Clean up your personal finances – close any credit cards you don’t need, reduce outstanding debts and lines of credit, and make your credit report as attractive as possible.

Now that you understand low doc loans, how do you go about starting the process of getting one? A mortgage broker can help you identify the lenders that are most likely to allow you to borrow, and can present you with options you may not have otherwise considered, such as non-bank lenders.