Low-doc loans are a type of mortgage designed for borrowers who are self-employed, freelancers or contractors who generally have difficulty meeting the stringent documentation requirements typically required for traditional home loans. As a mortgage broker, it’s important to understand who can get a low doc loan and how they work.
Who is eligible for a low doc loan?
Self-employed borrowers who do not have access to traditional financial records such as payslips or tax returns can often find it difficult to secure a home loan. Low doc loans offer a solution to this problem, as they require less documentation and are more flexible in their lending criteria.
To be eligible for a low doc loan, you will typically need to meet the following criteria:
- Self-employed: Low doc loans are primarily designed for self-employed borrowers who are unable to provide traditional proof of income. This includes sole traders, contractors, freelancers and small business owners.
- Good credit history: While low doc loans are more flexible in their lending criteria, having a good credit history is still important. Lenders will review your credit score and history to determine your level of risk.
- Equity: You will typically need to have a minimum of 20% equity in the property you are looking to purchase or refinance.
- Income declaration: You will be required to declare your income in the loan application process. This can be done through a self-declaration of income or by providing alternative documentation such as bank statements, BAS statements or an accountant’s letter.
How do low doc loans work?
Low doc loans work in a similar way to traditional home loans, but with less stringent documentation requirements. The amount you can borrow and the interest rate you will be charged will depend on your individual circumstances and the lender’s lending criteria.
Typically, low doc loans will have a higher interest rate than traditional home loans due to the increased risk to the lender. However, this can vary depending on your individual circumstances and the lender you choose.
Low doc loans can be used for a range of purposes, including purchasing a new home, refinancing an existing home loan, or accessing equity in your current property.
What are the benefits of low doc loans?
Low doc loans offer a range of benefits for self-employed borrowers, including:
- Flexibility: Low doc loans are more flexible in their lending criteria, making it easier for self-employed borrowers to access finance.
- Less documentation: Low doc loans require less documentation than traditional home loans, which can save self-employed borrowers time and effort in preparing their loan applications.
- Access to finance: Low doc loans provide self-employed borrowers with access to finance that they may not otherwise be able to secure.
- Fast approval: Low doc loans can often be approved faster than traditional home loans due to the reduced documentation requirements.
What are the risks of low doc loans?
While low doc loans offer a range of benefits for self-employed borrowers, there are also some risks to consider. These include:
- Higher interest rates: Low doc loans often come with higher interest rates than traditional home loans, which can result in higher repayments over the life of the loan.
- Higher fees: Low doc loans can also come with higher fees, including application fees and ongoing fees.
- Increased risk: Low doc loans are considered higher risk by lenders due to the reduced documentation requirements. This can result in stricter lending criteria and higher interest rates.
- Limited options: Low doc loans may not be available from all lenders, limiting your options when it comes to choosing a loan.
In conclusion, low doc loans are a valuable option for self-employed borrowers who have difficulty meeting traditional documentation requirements. As a mortgage broker specialising in low doc loans, I’d love to help you. Book a time with me today to see your options.
