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How To Go About A Low Doc Loan Application

Posted in Getting Started on 3 Apr 2019

Loan application form

A low doc loan is suitable for someone who is:

  • A contractor
  • An investor
  • Has irregular or non-standard income provided they have an ABN or operate under a company structure
  • Is self-employed
  • Is a small business owner

 

There’s a reason that low doc loan options exist; if you fall into one of these categories why should you miss out on competitive loan options?

 

There are plenty of lenders, including Guardian National Mortgage, who offer low doc loans at competitive rates.

 

Let’s talk about what you’ll find in this blog:

  1. What is a low doc loan?
  2. Quick news roundup
  3. Standard loan or a low doc loan?
  4. Am I eligible?
  5. The documentation you’ll need
  6. What I’ll be assessed on?
  7. Approval tips
  8. Frequently asked questions

Click any of the links in the list above to quickly navigate to the section that interests you.

 

1. What Is A Low Doc Loan?

Application form with signature

You might have heard of the following terms before:

  • Low doc/Lo doc
  • Alt doc
  • No doc

 

Depending on which lender you contact these 3 loan options could be separate products that require different documentation and have distinct loan features and options. In the case of Guardian National Mortgage, we consider them the same product.

 

While this blog will focus on how to go about getting a low doc loan application approved, we’ve got another great blog on What Is A Low Doc Loan that can answer all of the questions regarding the product.

 

If you’re already caught up on what a low doc loan is, let’s talk about what factors may affect your current loan, repayment options and future loan applications.

 

2. Quick News Roundup

Business man reading the newspaper

It’s easy to get tunnel vision when it comes to your current loan or future application. Many Australians, with a low doc or standard loan, will only consider the current interest rate as a determining factor that will affect their loan.

 

It’s not an incorrect assumption but there are many other factors that will and can influence your repayment options and whether you should be considering a new loan.

 

What factors will affect your current or future loan?

  1. Housing prices
  2. Interest rates
  3. The Royal Commission

 

What will you do?

  1. Nothing?
  2. Refinance?
  3. Consolidate debt?

 

It’s hard to tell sometimes. That’s why we’ve got a blog on Your Guide To Low Doc Loans In Australia. It’s got everything you’ll need to know when it comes to domestic and international issues affecting Australians who have or are thinking about a low doc loan.

 

3. Standard Loan Or A Low Doc Loan?

Document with debt written on it

There are several key differences between a standard loan option and a low doc loan. These differences can be sorted into the following categories:

  1. Documentation
  2. Loan features

 

Documentation: standard loan

 

We’ll start with your basic home loan as it’s one of the simplest products of the market. A home loan will require identity verification requiring two or more of the following: passport, birth certificate, citizenship, pension card or drivers license.

 

Then you’ll need to provide proof of:

  1. Employment and income
  2. Savings
  3. Current debts
  4. Assets

 

Some of these documents on the list may not exist for you, may not be available or not up to date. As such, you may be ineligible for a standard loan but qualified for a low doc loan.

 

Documentation: low doc loan

 

Since low doc loans are given to those with a non-standard or irregular income you’ll need to provide a range of alternative documentation.

 

The process for providing documentation for a low doc loan is similar to providing proof of identity — there’s a pool of documents you can provide and each document having a corresponding numerical value.

 

In order to successfully prove your identity, you’ll need to send in enough documents to meet the minimum benchmark.

 

That minimum is usually 100 points with a passport, birth certificate and citizenship being worth 70, pension card worth 40 and drivers licence worth 25.

 

 

The very same goes for a low doc loan. You’ll have to choose from a range of different documents types and successfully provide enough documents to meet the minimum quota.

 

The quota and the pool of documents you can choose from will all depend on the lender and their discretion.

 

Documentation isn’t the only difference between a standard loan and a low doc loan.

 

Loan features: low doc loan

 

The available features for a low doc loan are:

  • 100% offset account
  • Ability to make extra repayments
  • Fixed interest rates
  • Interest-only option
  • Line of credit
  • Split-loan option

 

Features unavailable for low doc loans include:

  • Introductory interest rates
  • Repayment holiday
  • Security substitution
  • Third-party guarantees

 

4. Am I Eligible For A Low Doc Loan?

Thumbs up or thumbs down

There are 3 groups of Australians’ that are most suited to low doc loans:

  1. Contractors
  2. Investors
  3. Self-employed

 

While these are the 3 major groups that many lenders target for low doc options it doesn’t mean you can’t obtain a low doc loan if you don’t fall into one of these three categories.

 

Contractors

 

A contractor may work an entire year. Others however, will work seasonally or have short monthly contractors over the course of 12 months. Regardless of whether you’ve worked 12 or 3 months if you’re in a contract role a low doc loan will be suitable for you.

 

Investors

 

Perhaps the most irregular and nonstandard of the 3; an investor may find it difficult to obtain a loan option of any kind from various lenders.

 

The reason that many investors encounter difficulty applying for a loan is that their income can be so irregular, even the investor may not know when their next paycheck will be.

 

Since some investors aren’t on a payroll it can be very difficult to prove income for a standard loan but with a low doc loan, investors can access funds for new ventures.

 

Another reason why investors find difficulty getting a loan approved is because their income from an investment doesn’t appear on their BAS turnover. As such, you’ll need to make sure the income you are assessed on is high enough.

 

Self-employed

 

Ironically, small business owners and self-employed are the ones that know their financial situation better than anyone else. However, proving your financial position and income is where it becomes difficult.

 

While a declaration of income can be straightforward for lenders, the ability to make consistent repayments can be a sore spot for many institutions offering a loan.

 

You know better than anyone else what repayments you can make but proving that can be difficult.

 

A low doc loan allows a small business owner to run their trade the way they want to; tax effective or profit driven. In this instance, a low doc loan lets to self-verify your income and repayment ability to gain the loan you want.

 

5. Documentation You’ll Need

Loan application form

Depending on the lender you may be asked to provide one or more documents to apply for a low doc loan successfully. Those documents may include the following:

  1. ABN registration and history
  2. Accountant’s letter
  3. BAS statement
  4. Borrower certificate income declaration
  5. Business bank statements
  6. GST registration and history

 

6. What Will I Be Assessed On?

Businessman filling out a form

Providing documentation for a low doc loan isn’t the only criteria for applying. You will likely be assessed on the following:

  1. Credit history
  2. Equity release
  3. Maximum loan exposure
  4. Net asset position
  5. Property location
  6. Repayment history
  7. Self-employment history
  8. Upfront deposit or equity

 

Credit history

 

In recent years lending restrictions have been handed down to reduce the number of loan defaults in Australia. Despite these measures, there are many lenders who still offer low doc loans to ‘bad credit’ borrowers.

Equity release

 

Equity release, otherwise known as ‘cash out’ is a type of refinancing whereby the lender pays out the borrowers home equity [the percentage of the home you own].

 

For instance; if a house is worth $10 and you put down a 20% deposit, you would then borrow 80% of the property’s value which is $8. The 20%, or $2, is what you truly own and is your home equity.

 

If you’ve refinanced in the past using an equity release to obtain a quick lump sum for personal investment, this may influence your new or future low doc loans.

 

Maximum loan exposure

 

Low doc loans typically have a lower maximum loan exposure than other lending products on the market – mainly due to the associated risk of the low doc loan.

 

The maximum loan exposure for many low doc loans is around $1 to 2 million dollars; however, there are lenders that may offer more than that.

 

Net asset position

 

Since low doc loan applications are assessed by participants with irregular or non-standard income, the net asset position of an individual is often the easiest way to gauge their true financial position.

 

Property location

 

The location of a property will be a major determining factor for gaining a low doc loan approval. From the lender’s perspective, if the property’s location is stable then they don’t have to rely heavily on the applicant’s income evidence.

 

Property location will also affect what LVR you can obtain with metropolitan areas having a higher LVR option than regional properties.

 

Repayment history

 

Just like any other loan product, your repayment history will be looked at to determine whether your loan will be approved. However, low doc loans typically have more flexibility for bad credit or loan repayment mishaps.

 

Self-employment history

 

The longer you’ve had an ABN, BAS, GST registration the better, as it shows borrowers that you’ve been self-employed for longer and are more reliable. Some lenders will require a minimum of 6 month history for those documents.

 

Upfront deposit or equity contribution

 

For many low doc loans product, you’ll have to deposit a minimum of 20%. The LVR options can also vary from each lender. Typically, an LVR of 80% is the standard though.

 

7. Approval Tips

Tip jar with bank notes

While everyone’s financial situation is different and your experience, loan option and economic landscape will be different for each person; there are a number of ways to increase the likely hood of gaining approval for a low doc loan.

 

If you’re looking to borrow, follow this guide:

  • Know your documents

 

Check with a range of lenders what documents they require. You may not have the documents for a low doc loan from lender ‘a’ but lender ‘b’ may accept your documents. Research is always key when looking for a loan product.

  • Know your loan product

 

For many borrowers, the interest rate is their number one priority when it comes to choosing a low doc loan product. While this is relevant, there are other aspects you should also consider.

 

Finding a low doc loan with a low interest rate is great but if it doesn’t come with the loan features you want then consider looking elsewhere.

 

The comparison rate is also a number you should be looking at. There are lenders who offer comparatively low interest rate loans but have a ton of hidden fees that will actually cost you more in the long run.

 

8. FAQs

Yellow sign with questions and answers written on it

Here at Guardian National Mortgage, we love to answer any questions you have about any of our loan products or services. You can visit our other page containing the most common FAQs regarding our Investor Edge, residential lending or refinancing.

 

Here are the most common questions we get about alt doc/low doc loans:

  • Can I apply for an alt doc loan even if I’m not a freelancer or business owner?

 

While it is possible for someone to apply and gain approval for a low doc loan. We suggest only considering a low doc loan if you don’t have standard documentation for a regular loan product.

 

The inflated interest rates of low doc loans would not be beneficial for someone who could gain a regular loan.

  • What is required for an alt doc loan?

 

In order to qualify for a low doc loan application with Guardian National Mortgage, you only need a bank statement and BAS statement.

  • What is a bank statement and BAS?

 

A bank statement shows all the deposits and withdrawals from a bank account. This statement can be used as a proof of income for a low doc loan.

 

A BAS statement, otherwise known as a business activity statement, is a regularly submitted document to the ATO that tracks your goods and services tax, PAYG withholding tax and other taxes.

  • Can I use an alt doc loan to buy an investment property?

 

A low doc loan can be used for the same purpose as a regular home loan. Just like a standard home loan you can take out a low doc loan for your primary residence or an investment home loan.

  • Does an alt doc loan reflect negatively on my credit score?

 

A low doc loan does not reflect poorly on your credit score unless you fail to make the necessary repayments for the loan.

 

Home Loans for Business Owners

 

A home loan is as easy as calling us on 1300 LOAN STAR or by sending us an email at . Contact us today and we’ll make sure we get back to you in 24 hours at any time during the week.

 

Disclaimer

The article on this website was correct at the time of writing but lender policies are subject to frequent change. This information is for general purposes only. Whilst we strive to keep our information up to date and correct. We take no responsibility for any loss or inconvenience caused from a person(s) or organisation(s) relying on this information. We recommend you contact us before acting upon any of this material.

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