Low Doc home loans

What you need to know about Low Doc home loans

Low Doc home loans are usually considered as higher risk by banks and lenders. This is because you are providing less evidence of your income. Because low doc borrowers are considered as higher Low Doc loan usually have lower maximum Loan to Valuation Ratios (LVRs), higher interest rates (proportional to the lenders assessed risk), and less loan features than regular (full doc) home loans.

To get a full doc loan (full documentation loan), a self-employed borrower usually needs to provide evidence of their income using a combination of:

  • Tax returns
  • ABN and/or GST registration
  • Business Activity Statements (BAS)
  • Business banks account transaction statements
  • Accountant's letter

A low doc loan (short for low documentation loan) is a type of loan that can be approved that requires less documentation to verify your income. Usually you will sign an income declaration and provide your Business Activity Statement (BAS), business account statements or an accountant’s declaration to prove your income. The bank or lender will then accept these documents as proof of your income without the need to see your tax returns and other financial records.

Low doc home loans are designed for people who have saved a deposit or have equity in a property but cannot show documentary evidence of their self-employed income.

Low doc loans can also be used by:

Self employed people who have trouble separating their personal and business cash flows

Professional investors: This is where investing is considered as the business.

Self Employed people with a lower income in the last financial year: Many banks and lenders use the lower or average of the last two years income when assessing your loan application. This can impact on your borrowing capacity if the lower income level is a once off.

Self employed people with complicated tax or company structure arrangements: Especially if you are a high net worth individual your accountant may set up complex arrangements to protect your assets or limit your tax liabilities into the future. These types of arrangements may mean that it is difficult for staff assessing your application at the bank to understand what it means. This can cause delays or a rejection of your application.

People who have large deductions such as depreciation which are not a real expense. These types of deductions can make you tax return look like you are earning a lower income than you really are. In some cases some lenders will allow you to 'add back' these expenses into your income for the loan assessment purposes.

Trust structure that have distributed income to family members. This can make it look like you have less income than you really do.

Some cash based businesses have difficulty showing income to the satisfaction of the lender.

Find out more about low doc home loans for self employed.

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