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Key takeaways:
- Low doc home loans, also known as ‘alt doc home loans’, are for people who can’t provide the usual paperwork when applying for a loan.
- Several banks and specialist lenders offer low doc loans, but they usually charge higher interest rates than standard home loans.
What is a low doc home loan?
Low doc home loans are designed for people who do not have the usual paperwork to prove their income, such as self-employed borrowers. These loans are ideal for anyone who has a non-traditional income stream, and unlike standard home loans, they generally have a simplified application process due to the limited documentation required.
While less paperwork is needed by applicants, lenders typically view low doc home loans as riskier than standard home loans. That’s why they’ll normally come with higher interest rates and stricter limits on your loan-to-value ratio (LVR).
How do low doc home loans work?
A low doc home loan works a little differently to a standard mortgage. Here are the basics of how these loans work:
- Application process: Instead of providing detailed financial statements, you’ll submit fewer documents.
- Income verification: You might use alternative methods to verify your income, such as business activity statements (BAS) as well as a letter from your accountant.
- Lender requirements: Different lenders have varying criteria. Some might require a larger deposit or charge higher interest rates to compensate for the higher risk.
Who can get a low doc loan?
These loans are ideal for self-employed individuals, like ABN holders, contractors and freelancers who aren’t paid a regular salary. Low doc borrowers include those who are looking to refinance, buy their first home, upgrade or downsize, or invest in property.
How to compare low doc home loans
Here are some factors to consider when comparing low doc home loans:
Compare interest rates
This includes between different banks and lenders as even a small difference can impact your total repayments over the loan term.
Look out for application fees
Such as ongoing fees (monthly or annual), and any additional charges, such as discharge fees.
Check the loan term
This includes any conditions attached to it and fees for redrawing cash if you’re ahead on your repayments.
Consider the flexibility of the loan
Such as options for early repayment, an offset account and redraw facility.
You may also want to research the lender’s reputation and customer reviews to ensure you’ll be getting a good customer experience.
Tip: Mortgage brokers have access to a wide range of lenders, some of which may specialise in low doc loan products. Brokers understand the different requirements of each lender and can guide you through the process, ensuring you provide the right documentation and meet the lender’s criteria.
Low doc home loan pros and cons
Pros
- Suitable for those who lack traditional documentation, like payslips and employer information.
- Suited to self-employed and freelance workers who may have infrequent cash streams.
- Less paperwork than traditional loans.
- Some lenders specialise in low doc loans, which may make the application process even quicker.
Cons
- Higher interest rates usually apply due to the increased risk for lenders.
- Some lenders require a larger deposit compared to standard home loans (e.g. 20-40%).
- Loan terms might not be as competitive as other home loans.
- Not all banks or lenders offer low doc home loans.
How mortgage brokers can help you apply for a low doc home loan
Each lender will have their own application process, but here’s a step-by-step guide on how it generally works when using a broker:
1
Contact a mortgage broker and arrange a meeting to discuss your needs and financial situation. The broker will ask about your income, employment status and property goals. They’ll explain how low doc loans work and assess whether this type of mortgage is suitable for you.
2
You’ll provide the broker with basic details and documents they’ll need to assess your eligibility. This includes personal information such as your ID, address, type of work and the industry you’re involved in. Additionally, they’ll need details about your current financial situation, including your assets and liabilities.
3
If you’re self-employed, you’ll need to provide business activity statements (BAS) or tax returns, plus bank statements and other proof of savings and deposit. They may also ask for a letter from your accountant verifying your income.
4
The broker will research and compare different low doc loan options from various lenders. They will evaluate multiple loans based on interest rates, fees and terms. Then they will present you with a shortlist of suitable loan options.
5
Once you’ve chosen a particular loan, you’ll work with the broker to complete and review your loan application. The broker will help fill out the application form, and they will ensure all required documents are included and correct.
6
Your mortgage broker will submit the application to the lender on your behalf. They’ll take care of the submission process and keep you updated on the application status and if any additional information is required.
7
You’ll await the lender’s decision on your loan application and the broker will communicate with the lender and address any issues that may arise.
8
If your application is approved, you’ll review and sign the loan offer provided by the lender. The broker will explain the terms of the loan and assist with any negotiations or changes needed. Additionally, the lender will arrange a property valuation to ensure its value is sufficient compared to the loan amount (LVR).
9
The mortgage broker will guide you through the entire settlement process and ensure everything is in order. They’ll also help you coordinate with legal representatives or conveyancers.
10
The broker will stay in touch with you for any post-settlement support or questions. They’ll usually provide assistance with managing your loan and help you refinance in the future if needed.
What documents will you need for a low doc home loan?
Although there’s less documentation involved, you’ll still need to satisfy the lender’s criteria.
For example, Pepper Money requires the following documents for low doc home loans:
- ABN registered for 24 months
- GST registered for 12 months
- Declaration of your financial position, plus one of the following:
- 6 months business bank statements
- 6 months BAS
- Pepper Money accountant’s letter
And here’s a typical form you’ll need to fill out as part of the application.
