What are low-doc loans?
Low-doc loans are known as low-documentation loans and are usually used by individuals who are most likely self-employed and as such experience high difficulty when gathering the necessary documentation required obtaining a traditional home loan instead.
Specifically, without needing to possess tax returns or financial statements, individuals who do have existing equity or reasonable deposit amounts will be able to apply for these loans.
Originally, due to the specific and albeit rare nature of the loan, when it was offered by financial institutions, they would use an interest rate that was higher than the standard variable rate.
However, as low-doc loans have dramatically increased in popularity, these institutions have begun offering them with rates that are similar and rival traditional home loans. These loans will also have their own considerable advantages and also disadvantages compared to standard loans.
Am I eligible to apply for a low-doc loan?
Due to the vague and uncertain nature of the individual’s finances involved, institutions will have strict criteria in place to ensure that individuals who do apply for low doc loans are more than able to pay the loan and its interest back.
Each institution will have their own preferences that dictate their criteria, so it can vary between lenders.
The most common criteria are you are able to prove your employment, whatever employment it may be, whether it be self-employment or a business you have running. If you can’t supply this information, these institutions have no reason to believe you can pay back the loan without a source of income.
Commonly, lenders will ask for Business Activity Statements that are verified by the Australia Tax Office over the past 12 consecutive months as proof of this, and confirm that such income is registered with GST over those months. It is standard to also place a deposit for the loan which can range around 20 per cent.
It will also be highly beneficial to be able to demonstrate a strong and reliable credit history and your ability to repay those debts in existing loans or unsecured debts. Any other financial information you can provide will also be valuable in this process but are not necessary.
What are the benefits of a low-doc loan?
The most exciting and valuable part of a low-doc loan is the limited paperwork that you have to deal with. These loans are specifically designed so that you don’t have to supply extensive or gather scrupulous amounts of paperwork to prove your income. You’ll be doing that through the alternate means mentioned above.
Unlike the traditional standard loan, these low-doc loans are extremely flexible due to the nature and varying backgrounds of the people applying for loans. Some low-doc loans will be aimed toward purchasing very expensive properties, whilst others are simply geared towards investors instead.
Lenders will be understanding and adjust the variables in a low-doc loan to suit the goal of your loan; a considerable advantage over the standard loans.
Even in cases of credit defaults or sub-par credit reliability, there will be low-doc loans that cater to these factors, meaning that even if you’re struggling, lenders will still be able to provide you with the financing you need.