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Low Doc Loans
What is a Low Doc Loan?
A low doc or alt doc loan is usually reserved for borrowers who are newly employed, self employed or who have alternative income forms that do not fit the usual criteria for a mortgage loan.
What is the Difference Between a Full Doc Loan and a Low Doc Loan?
A full doc loan usually requires the borrower to supply 2 to 3 years tax returns, payslips and the usual filling out of the loan application which includes a variety of questions regarding name, address, phone number, employment details, time at your current address and a variety of other personal details relating to your repayment capacity and stability.
A low doc loan for the purpose of getting mortgage finance, generally means that you do not have all of these items.
But do not worry as there are alternative documents that you can supply that allow you to obtain a home loan.
Generally self employed borrowers are the most common people who will use low doc loan methods. Generally, this is because they may not have been operating the business for a long enough period of time to have two to three years of tax returns from their new business.
Legislation Changes Relating To Low Doc Loans
Before the National Consumer Credit Regulations Act 2009, low doc loans were far easier to comply with and required generally minimal documentation. One of the key requirements after this legislation was that lender’s cannot lend to a customer unless they have met the lenders responsible lending obligations. In effect meaning that they have to satisfy themselves that the borrower has the capacity to pay the loan. They need to pass the “not unsuitable” test as it is called and if a lender doesn’t comply, the loan may be struck down in terms of repayment obligations. Naturally banks and lenders do not want to be in a position where the loan is not repayable. Some lenders for this reason call loans Alternative Doc loans.
Some of the alternative documentation for what a low doc loan may be considered are:-
- Evidence of an ABN for 12 or 24 months ( depending on the loan type)
- Evidence of GST registration for to 12 months (depending on the loan type)
- A Declaration of the borrower’s financial position including one the following
6 months of business statements
And an accountants letter disclosing their financial situation
6 months of business activity statements
In every instance with low doc or alt doc loans, everyone has their own personal circumstances, whether that be sufficient equity, a history of success in their new business, bank and BAS statements to support their loan application and other documentation. If you feel that you do not have sufficient documentation for a conventional loans, then contact us on 1800 100 100 or fill out the free credit report link above. This will give you a credit score and the basis to start discussing a housing or property loan.
What Documents Can Be Substituted For Tax Returns?
There are a number of documents that can be used to substitute for tax returns. This includes bank statements, pay slips, BAS Statements and 6 months of business statements. It depends on the lender.