How Do You Qualify for Low Doc Loans?
According to official stats, 17.07 percent of the population in Australia are self-employed. However, being self-employed could make it difficult for you to obtain a loan. That’s because your income isn’t derived from traditional means. Low doc loans are specifically designated for self-employed individuals. In fact, this is the only way in which you may borrow without the need to provide financial statements and recent tax returns.
Nevertheless, considering that lenders have distinct specifications and interest rates, you could find it difficult to choose the right loan. That’s why today, we will talk about how to qualify for low doc loans. We’ll also answer other equally important questions.
Introducing Low Doc Loans
Low doc loans, also referred to as low documentation loans, may be approved without the regular income verification. What does this mean? It means that you may sign in an income declaration and verify your income and the lender will accept that as proof testifying for your income. There is no need to assess your tax returns and other documentation.
How to Get Approved for Low Doc Loans?
You should consider the following three steps when you’re on the lookout for a reliable lender:
- Find out more info about the documentation you must provide. Additionally, assess your needs, and establish which lender can address them.
- Choose a lender whose interest rates, fees and LMI (Lenders Mortgage Insurance) are most convenient for Make sure that the loan’s features meet your needs.
- Present your application so that you can convince your lender to give you the loan.
It’s worth mentioning that if you only provide partial proof of your income, the lender must request full financial statements and tax returns for all entities. In fact, if a lender assesses a document or another, he/she cannot overlook it. To steer clear of this issue, you should only supply the documents requested by the lender.
Do I have to Demonstrate my Income?
Typically, in order to get approved for low doc loans, you should come with supporting documents that confirm the income you have declared to your lender. Take into account, though, that every lender has specific requirements. Thereupon, each will accept distinct document types that verify your income. The main papers you might find useful are:
- 12 months’ BAS (business activity statements) that indicate a high turnover.
- A letter from your accountant that verifies your income.
- Old tax returns from over 24 months.
- Business bank statements that point a high turnover.
- Interim financial statements.
According to the National Consumer Credit Protection Act (NCCP), lenders must have income verification before being able to approve your mortgage. In the event in which you are unable to provide the documents enumerated above, that could minimise the likelihood of getting a low doc loan. In this case, you could qualify for a no doc loan.
What about the Loan to Value Ratio (LVR)?
Now we’d like to talk about the loan to value ratio. In this respect, note that most lenders will accept loans up to approximately 60 percent of the total value of the property. Nevertheless, some lenders might be willing to facilitate up to 80 or even 90 percent LVR.
While this may seem like good news, bear in mind that the higher the percentage of the property value, the greater the interest rates and fees will be. It’s as simple as that.
Reasonable Income for Age and Occupation
Does the declared income matter as much as you’d expect it to? Not necessarily. For instance, an 18-year-old apprentice won’t receive approval in the event in which one declared an income of $200,000. That’s because banks and lenders must abide by responsible lending legislation. In this direction, they will carefully examine your declared income and occupation.
Does the Credit History Matter?
Moving on to the next aspect, namely the credit history: is it as important as it is with other types of loans? Truth be told, when it comes to low doc loans, lenders will evaluate your repayment history and credit file. That’s because they lack the means to verify your income fully – this is particularly true if you’re self-employed.
Obviously, major banks are not as forgiving as independent lenders in the event in which you have been struggling with credit issues. The good news is that some lenders are willing to work with Aussies, irrespective of their bad credit records.
The Bottom Line
As you can see, qualifying for low doc loans is straightforward. As long as you consider our tips, you’ll be on the right path.
If you have other questions or you’re uncertain regarding the lender you should pick, make sure you get in touch with NSW Mortgage Corp. We specialise in facilitating a wide spectrum of lending services that are competitive, and, most importantly, meet the needs of the borrower!