The How and Why of Low-Doc Property Loans

What does low-doc mean?

No, low-doc loans aren’t physicians who are good at limbo.

Low-documentation, or ‘low-doc’, loans are specifically for those who may find difficulty in producing sufficient documentation as required for traditional loans.

Why use a low-doc loan?

The main reason to apply for low-doc loans is because you find it difficult to produce a true proof of income.

• Your company structure may be too complex to truly reflect your current position.
• You may deal with cash payments that aren’t represented in your tax returns.
• You may have distributed income to family members from your trust.
• You may have large deductions on your tax return e.g. Depreciation.
• Your income may have increased since your previous tax return.
• Your tax returns may not be up-to-date.

Those who are self-employed have traditionally been viewed as higher risk; proving eligibility required piles of paperwork, a lot of time and inevitably a lot of money.

Low-docs avoid the drawn-out process. 

Who can get a low-doc loan?

Lenders have various and differing methods to establish whether they will offer a low-doc loan. A borrower may have to submit a self-certification; this is a declaration that confirms your eligibility to borrow. An accountant’s declaration may also be required or your BAS (business bank account statements).

Initially, low-doc loans were only available from top tier lenders. They encumbered much higher interest rates and more restricted lending criteria than mainstream loans. Today they are much more widely accepted and offered, with rates being lowered close to standard variable rates. While primarily used by the self-employed for home loans, low-doc loans are also used by many different people for many different uses.

Most property borrowers should be prepared for a loan-to-value ratio of at least 80%. Some borrowers however are lending with deposits lower than 20%, and even to people with black marks against their credit history.

Previously there were requirements to hold a valid ABN that had been registered for at least two years – this is no longer the case with many lenders accepting ABNs just one day old.

What is an Income Declaration Form?

This is an easy way to self-declare your income when applying for a low-doc loan. Typically, the form will state your name, business, ABN, amount to borrow and indicative repayments.

At the bottom is a declaration confirming that you believe the income stated to be true and that you can afford to take on this loan. Some lenders may ask you to verify your assets and liabilities, others may not. The process can vary lender to lender.

Tips when applying

Achieving these three stages will assist when applying for low-doc loans.

• A self-certification/income declaration form.
• A confirmation of your employment – through an ABN or accountant’s letter
• Clean credit history and repayment record

It is also important to consider more than just the interest rate offered.

• What is the LMI (Lenders Mortgage Insurance) premium?
• Is there an application fee?
• How much can you borrow?

Some lenders are better than others so do your research before jumping in.
See here for a list of low-doc loan lenders.

What about no-doc loans?

As the name suggests, low-doc loans still require a reduced amount of documentation to prove your eligibility. In many cases, lenders may offer no-doc loans. These are different and need to be treated as such.

The four major banks no longer offer no-doc loans. Lenders that do are smaller, non-bank providers. Again, make sure you do you research before going ahead with any of them.