A “low doc loan” or low documentation loan is used by many borrowers who have income and assets but cannot provide their lender with financial statements or tax returns as proof of income. This can be a useful solution for the self-employed or those with an ABN.
Low doc loan
For low doc loans, you do not have to provide proof of income. Lenders use a self-verification method, which involves the applicant declaring what their income is. The lender does not verify your income using documents, but they do complete their normal credit assessment and will check that you can afford the loan based on what you have declared. They will also consider the documentation you can provide about the cash flow of your business.
ABN holders such as small businesses, contractors or the self-employed who cannot prove their income through documentation often find low doc loans a useful solution.
For a low doc loan you generally need a deposit of at least 20% of the purchase price. You could fund the deposit through savings or you may have some existing equity you could use.
What do you need to apply for a low doc loan
Lenders will ask for a statement confirming your income (often this needs to be certified by your accountant), business bank statements or BAS statements or a combination of these to support your declaration of income.
Low doc loans often have a higher interest rate than full doc loans and are available only at lower Loan Valuation Ratios (LVRs). Because of this, it is a good idea to refinance to a full doc loan once you have completed your tax returns or can provide a lender with adequate proof of income.
When might a low doc loan be right for you?
If you are unable to obtain a full doc loan, because you cannot provide sufficient proof of your income to a lender (e.g. if you are self-employed and do not have regular pay-slips), then a low doc loan might be the finance solution for you. Like other types of loans, there are various low doc options available.
Low doc loans may be the answer for you if have recently started being self employed and do not have 2 years of lodged accounts to provide evidence of your income, your tax returns are not current, your income has increased since your last tax return or you maybe self employed with a complex business structure. A low doc loan may help you buy property or inject cash into your business.