LOW DOC HOME LOAN

Introduced in the 1990s primarily by mortgage brokers, what has once been considered an alternative product is now fairly mainstream. Rather than checking off a documentation list, a low doc home loan accepts different kinds of documentation and focuses on your overall ability to service a loan.

Low documentation (low doc) home loans are designed to assist applicants who are self-employed and unable to supply the documentation needed for a traditional home loan.

Some of these documents include business activity statements, profit and loss statements, or even in some cases, a one-page accountant declaration confirming income.

What do I need to provide for a Low Doc Home Loan?

Although low doc lending is a simplified means of lending for self-employed applicants, there are a number of requirements that need to be fulfilled before an application can be considered.

In most cases with mainstream low doc lending, the following is required;

• minimum of 2 years ABN registration
• minimum of 1 year GST registration
• lenders vary between minimum 20-30% deposit

What are the fees and charges for Low Doc Lending?

Given low doc lending is classified as a "higher risk" the lenders who provide the option generally charge a risk fee. This risk fee is calculated on the loan amount and normally falls between .65% to 1.50% depending on the overall LVR and the lender you are applying with.

For example, if we applied for a loan of $500,000 on a property valued at $850,000, we would be looking at an LVR of 58.82%. Based on this scenario, one of the lenders will charge a risk fee of .65% of the loan amount or $3,250.

There are also a few other fees and charges which need to be factored in when applying for a low doc home loan such as;

• Higher interest rates
• Application fees
• Ongoing monthly fees
• Valuation fees

Pros

• Simpler application process as less documentation is needed
• An easier way to obtain a home loan for people who are self-employed

Cons

• Higher deposit needed
• Higher interest rates and fees on average

Should I apply for a Low Doc Home Loan?

Before applying for a Low Doc Home Loan, it’s important to sit down with an experienced mortgage broker to work out if this type of loan is right for you. Just because you are self-employed does not mean that your only option is to apply for a Low Doc Home Loan.