If you’re self-employed and you can’t provide regular pay slips for a standard home loan application, a ‘low doc’ home loan could be the option for you. ‘Low doc’ is an abbreviation for low documentation. Low doc home loans can be approved for self-employed applicants with fluctuating incomes.
It’s important to understand that not all lenders offer low doc home loans and the ones that do have different application and approval criteria. However, to approve your application, any low doc lender will want:
- proof of your ability to afford your ongoing low doc home loan repayments. Lenders in Australia are legally required to do this for all loans under responsible lending provisions.
- you to have a good credit rating (also known as a credit score). Lenders check your credit rating as part of assessing your application. If you have a bad credit rating, you’ll find it difficult to get approval for any loan. You can improve your credit rating by making all your credit repayments on time (including your mobile phone and electricity accounts).
What information do you need to provide for a low doc home loan?
Your lender will likely need the following information about your business to assess your low doc home loan application:
- ABN (Australian Business Number).
- Business activity statements (BAS) and/or personal tax returns for at least the last two years.
- Bank account statements for at least the last two years.
- Letters or statements from your accountant verifying your business’ financial statements.
In addition, you’ll usually have to prepare a realistic budget of all of your weekly, fortnightly, monthly, quarterly, half-yearly or annual expenses and income. This budget should demonstrate that you can afford your low doc home loan repayments, even if your cash flow fluctuates.
What are the advantages of low doc home loans?
- They may be your only option if you’re self-employed.
- Many low doc loans come with optional additional features of standard home loans, such as redraw facilities and offset accounts. A redraw facility lets you withdraw any extra repayments you make if you need those funds later. An offset account can help you to play less interest on your home loan.
What are the disadvantages of low doc home loans?
- They have a higher interest rate than standard home loans.
- They usually have higher fees,
- You will usually have to provide a higher deposit.
- You will usually have to take out lenders mortgage insurance (LMI). LMI protects the lender if you default on your repayments. The cost of LMI varies between lenders, but it can be $10,000 or more on a typical home loan.
How we can help
At Wisebuy Investment Group in Newcastle, our experienced and licensed brokers can help you to find the right loan for your needs, including line of credit home loans. We can also help you with your application.
Contact us today for an obligation-free chat! We’ll take the time to understand your individual needs before providing you with appropriate advice. Our focus will be on finding the right loan for your needs from over 60 Australian lenders.
And best of all, our service is free!