Compare Low-doc Home Loans
In order to buy your own home, banks and non-bank institutions will require you to provide proof of a steady income. Usually, this means at least three months of payslips pointing to the completion of a probationary period with that employer.
However, for some employees and business owners these criteria can be difficult to meet.
Self-employed small business owners, might be unable to provide the required documents to prove a regular income.
If this is the case, a low doc loan can help you finance the purchase of your new home.
You might even consider a new car, or other items with a low doc personal loan.
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*The comparison rates in this table are based on a loan amount of $150,000 and a term of 25 years. WARNING: These comparison rates apply only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and costs savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.
Monthly repayment figures are estimates only and exclude fees. Based on the advertised rate, 25 year term and loan amount entered. Actual repayments will depend on your individual circumstances and interest rate changes. Interest only loans – the monthly repayment figure is applicable only for the interest only period. After the interest only period, your principal and interest repayments will be higher than these repayments. Fixed rate loans – the monthly repayment is based on an interest rate that applies for an initial period only and will change when the interest rate reverts to the applicable variable rate.
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What is a low doc home loan?
A low documentation (low doc) home loan is a home loan that potential borrowers can secure with less documentation than the full amount of documentation required for a standard home loan.
Low doc home loans are also referred to as non-conforming loans suit borrowers who have no PAYG (pay as you go) payslip records, or cannot provide financial statements and tax returns.
Some banks may refer to low doc home loans as alt doc loans, referring to the documentation as an alternative type of documentation to the usual type of documents required.
Many people with alternative income such as self employed, casual and contract workers, don’t have the usual documentation such as pay slips and group certificates to prove their earnings. This can make it more difficult to be approved for a standard home loan.
Essentially, low doc loans are designed for people who have the income and the deposit, but lack the standard amount of proof that is necessary for a typical loan.
Low doc loans have been around since the 1990s and were introduced by non-bank lenders in an effort to provide an avenue for people who were otherwise excluded from standard loans. These loans have been welcomed by those who beforehand were unable to secure a home loan.
When applying, you still have to provide some types of proof of income, just not the same types as required for standard home loans.
Nowadays, with so many people being self employed, low doc loans are more widely available and offer many more options for non-conforming borrowers.
With so many options available, it makes it easier to compare low doc loans and find one that suits your needs.
It should be noted, that due to the fact that non-conforming borrowers lack the required standard of income proof, lenders will often require a higher deposit and may charge higher interest rates than those of traditional loans.
Each lender will have their own set of criteria that you will need to meet, but most will require you to provide at least two years of tax returns, business activity statements (BAS) and profit and loss statements.
You can get a low doc loan at any of the major banks as well as smaller lenders such as non-bank lenders, credit unions and building societies.
How to compare low-doc home loans
There are so many variations when it comes to low doc loans, that sometimes it can be quite confusing figuring out which one to go with. It’s always best to start with the two basic comparison principles:
1. Interest rate
Looking at the interest rate first is a great way to begin comparing low documentation loans. Some low doc loans will offer the choice of a fixed or variable rate. Having a fixed rate will mean your interest rate is slightly higher, but you are safe in the knowledge that your repayments will remain the same throughout the fixed period. Many people choose a variable rate but you need to keep in mind that with a variable rate, you will experience fluctuations when the standard cash rate rises or falls. Some lenders will offer a split rate option which means you can split your repayments into two. One part will be variable and will fluctuate with the standard cash rate, and the other portion will remain fixed so you know how much you will be repaying on that portion.
2. Loan type
Some low doc loans offer the option of principal and interest or interest only.
To keep your repayments low, you can select interest only but this means that you will pay off none of the principal in that time and will still owe the full amount at the end.
Difference between repayments
Principal and interest
If your repayments are made up of principal (amount you initially borrowed) and interest, this means that with every payment you are putting money towards the principal, you are paying down your loan and will be closer to paying it off. You will also be paying interest every month on the balance. The interest will reduce as you pay down your principal. Loans that are principal and interest generally have lower interest rates.
With interest only repayments, the principal isn’t reduced at all and the interest you pay continues to be calculated during this period. This could mean that you end up paying a lot more interest over the life of your loan. Your minimum monthly repayments will only contain the interest, which means as a monthly payment the amount will be lower.
Once the interest only period expires, you will be required to start paying off the principal and your monthly repayments will increase to cover this.
As much as the interest rate is one of the most important aspects of your new loan, there are a variety of other features you may want to look into.
1. Extra payments
Having an irregular income could mean you have some months where you have extra money that you would like to put into your loan. If this is the case, you need to find out if the loan you are considering allows extra repayments. Being able to make extra repayments will reduce your home loan quicker, therefore meaning you pay less interest over the life of your home loan. If you do select this feature, there may be a small fee or charge involved.
2. Redraw Facility
If you have made any additional repayments into your loan, a redraw facility allows you to withdraw some of that money. This may be useful if you have months where your income isn’t as steady. It’s also a good way of covering debt that is in otherwise higher interest areas such as credit cards and personal loans, as low doc loans typically have lower interest rates than the other loans.
3. Offset account
An offset account is helpful if you have extra money sitting in your everyday transaction account. When calculating how much interest you need to pay per month, the lender takes into consideration how much is in your offset account. This amount is then deducted from your principal, which leads to a lower monthly interest repayment.
Many times, you will only find offset accounts paired with variable rates.
4. Flexible repayments
Many home loans allow you to choose how often you would like to make your repayments so you aren’t locked into only making one monthly payment. It might suit you better to pay weekly or fortnightly.
How do I apply for a low-doc home loan?
Applying for a low doc loan is similar to applying for a regular home loan. It can usually be done online, over the phone or at a bank branch if you prefer to do it face to face.
If you have all your documents ready before you start, it will make the process a lot easier to apply and will move your approval along quicker than if you are unprepared.
Each lender has their own criteria, so make sure to find out what your lender will need.
Sometimes, people find it tricky trying to deal with banks or lenders. If you feel you need extra help, you can enlist the services of a mortgage broker. Mortgage brokers are specialists in non-conforming loans and could potentially help you find a better loan than you could find for yourself.
Brokers receive a commission from banks and untraditional lenders, so you don’t need to pay them out of your pocket.
Each bank has a slightly different process for applying for a low documentation home loan, however the basics are similar. Once you have compared low doc loans and have decided to apply, you will need to provide the following documentation:
- Proof of identification
- Proof you’ve been working in the same industry for at least 12 months
- An ABN
- Registered business name
- At least 12 months of lodged business activity statements (BAS)
- Proof of registration of GST
- Personal bank statements
- Business bank statements
- A declaration from your accountant verifying your income
What are the main differences between low doc loans and standard home loans?
The most obvious difference is that you don’t require as much documentation for a low doc loan as you do for a standard home loan.
A low doc loan will therefore have slightly higher interest rates than a traditional loan.
Another important difference between low and full doc loans Is that you will be required to pay a larger deposit for your low doc loan.
The final key difference between low doc and standard home loans is the maximum amount you can borrow. With a low doc home loan you may find that the maximum loan amount is lower than that of a standard loan.
What are the main differences between low doc loans and no doc loans?
A low doc loan, is not a no documentation loan.
While a low doc loan requires less documentation of regular income and assets that outweigh liabilities in the eyes of a lender, a no doc loan requires no documentation.
The major four banks along with many alternative lenders, no longer offer no doc loans.
The lending criteria for no doc loans include:
No income evidence
While you don’t need tax returns, BAS statements, or bank account statements to verify your income, some lenders still require you to sign a statement of your assets and liabilities or a declaration that confirms that you can afford the loan.
Your loan must meet one of the below criteria:
- Your loan must be for business purposes
- Your loan must be secured by a commercial property
- Your loan must be for investment purposes (not residential property)
- Your loan must be in the name of a company or trust with an ABN.
The lender will require you to have sufficient security. The property they are taking as security
- In a good location.
- In good condition.
- Larger than 50m2 for a unit or under 2 hectares for land.
- Readily saleable.
- Residential properties, offices, factories, warehouses and retail may be acceptable for a commercial no doc.
Some lender still require you to have a good credit history. While there are lenders who will approve a no doc loan for someone with an impaired credit history, this isn’t the case for all lenders.
One thing is for sure, bad your credit history, will require you to pay a higher interest rate if approved.
No doc loans are for short periods of time: six months to three years. If you do not have an exit strategy for the required period of time, you will likely be rejected.
Lenders want to know how the borrower plans to sell the property or another asset to repay the loan.
This compares with low doc requirements as such:
- Borrower should have a clean credit history.
- To avoid Lender’s Mortgage Insurance (LMI), you will generally only be able to borrow a maximum of 60%.
- Full property valuations.
- No second mortgage on the property.
- Self-employed for at least 1 year (some lenders require 2 years).
How much deposit will I need for a low doc home loan?
If you are applying for a low doc loan, it is because you don’t have a regular income and therefore pose a risk to the lenders. Due to this, you generally cannot borrow more than 80% of the property’s value. In addition, Lenders Mortgage Insurance (LMI) will apply to any loan with a LVR higher than 60%. Keep in mind, some lenders may offer a low doc home loan with the maximum 90-95% LVR, so do your research and see what suits your situation best.
If you have an LVR of 60% or below and you would like to apply for a low doc loan, you will need to have had your ABN registered for more than 1 year. You will also need to be registered for GST if your earnings are over $75,000.
Which lenders offer low doc home loans?
There are many lenders that offer low doc home loans. These include banks, credit unions, building societies and other non-bank lenders. Below are just a handful of lenders which offer a low doc home loan. Each lender has their own lending criteria and fees, so always do your research before deciding on a lender.
The Commonwealth Bank has a selection of low doc home loans. These include a standard variable or fixed rate home loan, basic variable rate home loan and a line of credit (LOC) home loan.
RAMS is a non-bank lender. They offer three low doc home loans options: fixed rate home loan, variable rate home loan (with redraw) and a line of credit.
Like most of the big banks, Westpac provides a standard variable rate low doc home, an investment home loan and a line of credit. You can also access some discounts on fees and rates by paying for their annual Premier Advantage Package
- St. George
St.George offers fixed rate, variable and equity loans for low doc borrowers. You can also have access to a 100% offset account.
Can I refinance my low doc home loan?
Low doc loans can be refinanced, however refinancing usually means reapplying for a whole new loan and waiting for approval.
If your purpose of refinancing is to get a better interest rate, it is worthwhile speaking to your lender and asking if they can offer a better rate before you start an entirely new, time consuming application somewhere else.
Advantages and disadvantages of low doc loan
As with any loan, there are advantages and disadvantages.
- Possibility to get a home loan even if your income isn’t received on a regular basis. This is beneficial for self employed, casual workers, contract workers and investment owners.
- Less documentation required to be approved.
- Variety of loan options. Much like standard loans, you could opt for a fixed or variable rate and also benefit from features such as redraw and offset account.
- Higher rates due to your higher risk of unsteady income.
- May require a larger deposit.
- You may be subject to more fees and charges than that of a standard loan.
Low doc personal loans
Low doc loans cover more than mortgages.
Oftentimes, a personal loan is required by small business owners and the self-employed to cover operational expenses.
Like low doc home loans, low doc personal loans are for those who may have difficulty being approved for a standard loan based on a lender’s risk return model.
Many lenders offer self-employed personal loans: secured and unsecured loans.
A secured personal loan is a loan secured against something that you own, such as your car or house.
An unsecured personal loan is where the lender agrees to lend you money without taking a form of security, subject to your capacity to repay.
Low Doc Home Loan
Low-doc home loans give self-employed borrowers an alternative way to certify their income. These loans can carry extra costs, so it’s important to review and understand the criteria, features and rates of several products before making your choice.
Here you’ll find all the relevant information about different low-doc home loans from a wide range of banks and lenders. It’s never been easier to compare and save.
Low Doc Loans FAQ
1. Can I consolidate loans onto one low doc home loan?
All lenders have different rules and conditions. You may find that some lenders will only let you use your low doc loan for a home, however others might allow you to consolidate your debts. This includes credit card debt and other personal loans.
2. What proof of income will I need to provide my lender?
Most lenders of low doc loans will require you to provide tax returns from your past two years to prove to them your ability to repay the minimum monthly requirements. Look into what documents will be required before you apply. This way your application will run a lot smoother. Most lenders will also require you or your accountant to sign an income declaration stating your income.
3. How long do I need to have had an ABN number for?
In majority of cases lenders will require you to have an active ABN for a minimum of two years in order to be eligible for a low doc loan.
4. What's the difference between low doc and no doc loan?
With a low doc home loan, you will be required to provide some type of evidence of income. This could be in the form of tax returns and bank statements. No doc loans are not available anymore but when they were available, you would simply need to sign a statutory declaration stating that you could afford to cover the cost of the loan.
5. Can I move to a full doc loan later?
In many instances, you should be able to move to a full doc loan after a certain period of time, provided you have made all repayments and you provide tax returns as proof of income. Always check with your lender before you sign up, if this is something you would like to do a little down the track.
6. Do only specialty lenders offer low doc loans?
Low doc loans are offered by all sorts of lenders from the big banks through to credit unions. Each lender has their own policy and fees so always check if theirs works for you and your situation.
7. How can I switch from a low doc loan to a full doc loan?
Some lenders will allow you to switch from a low doc to a full doc loan after two years, but will charge a small fee for doing so. This offer will only be made if you have been making regular repayments on your home loan. Other lenders may require documentation such as tax returns if you want to switch to a full doc loan, or if you haven’t reached the two year mark of regular repayments. It’s not always necessary to switch to a full doc loan as your low doc loan might have the same interest rate as a full doc loan.
8. Will my low doc loan application get declined?
The common reasons for low doc applications to be declined are:
- Your income is not high enough to service the loan.
- The location of the security property.
- A bad credit history.
- The type of property is not suitable for a low doc loan.
9. Does my credit history matter?
Yes, your credit history matters just as much with a low doc loan as it does with any other type of loan. The good news is there are specialist lenders known as non-conforming lenders who might approve your loan even if you have a bad credit history. These specialist lenders usually charge higher interest and fees for the risk of lending to you.
10. What is an income declaration?
When you are unable to provide your lender with the normal documents required to prove your income, an income declaration form must be filled out and signed. This is used as proof of your income.
11. What is on an income declaration?
An income declaration usually requests your name, ABN, loan amount, repayments and to state how much you earn. Some lenders will also require you to confirm your assets and liabilities or net asset position.
12. What would I need to show to get a full doc loan instead?
If you are self-employed and would like to apply for a full doc loan you would need to provide two years tax returns and notices of assessment for yourself and any companies that you are a director or shareholder of. Make sure all your income sources are accounted for, such as rental income which can easily be verified by a rental statement from your managing agent and will probably be listed on your tax return.
13. Do I have to pay an application fee or valuation fee?
All lenders differ. You may find that some lenders waive your valuation and application, others may charge you a fee only when the loan is advanced, not when the loan is applied for. Lenders such as non-conforming low doc lenders tend to charge an upfront fee for the valuation.
14. How much can I borrow on a low doc loan?
The amount you can borrow on a low doc loan depends on a number of things such as the lender, your income, your credit history and the security being offered. You can generally borrow up to 80% of the security value for a residential property, and 70% for commercial properties. Other assets including cash security may also be accepted.
15. Should I get a low doc loan?
If you are self-employed or have an irregular income that is hard to verify due to the lack of pay slips and group certificates, a low doc loan will suit you best. There are more chances you will be approved for a low doc loan provided you supply the lender with your last two tax returns and a letter from your accountant verifying your income.
Glossary of terms
|Application fee||the fee paid to a lender to set up a home loan.|
|Appraisal fee||the fee charged to gain a professional opinion about how much a property is worth.|
|Comparison rate||all fees charges and payments in one rate reflecting the total annual cost of the loan.|
|Credit Rating||the credit-worthiness of individuals and corporations, based on their borrowing and repayment history.|
|Credit report||a report from an authorised agency that shows the potential borrowers credit history which lenders will assess when deciding to approve a loan.|
|Debt consolidation||when a borrower rolls multiple loans into a single one.|
|Extra repayments||loans that allow you to make extra payments earlier than what is required. These are usually only available with variable loans.|
|Fixed rate Home Loan||a locked in interest rate for a particular period of time.|
|Interest-only loan||no principal repayments required on a home loan; the borrower pays the interest portion of the loan only.|
|Lenders Mortgage Insurance (LMI)||Insurance that a lender takes out in case of default from the borrower. Generally required for home loans with an LVR of over 80%.|
|Low-doc home loan||low documentation loans are designed for the self-employed, or those who will struggle to gather the documentation required to get traditional home loans. These loans usually carry higher interest rates and require LMI.|
|LVR||"Loan to Value Ratio," is the maximum proportion of the value of your home that can be loaned out to you.|
|No Deposit Home Loan||A no deposit home loan allows you to borrow the full purchase price of a property without saving for a deposit.|
|Non-conforming loan||home loans for people who do not meet the standard criteria for traditional home loans, could be self-employed.|
|Offset account||Accounts that offset taxable income against interest paid on mortgage repayments.|
|Principal repayment||repayments toward the original loan amount, rather than interest on the loan.|
|RBA cash rate||the overnight interest rate that the Reserve Bank of Australia offers institutions to settle-up on inter-bank transactions.|
|Refinancing||Paying off an existing loan and establishing a new one.|
|Split Loans||a predetermined portion of your home loan is locked in at a fixed interest rate, the other portion is a variable rate of interest.|
|Switching||changing from one product to another: variable to fixed or fixed to variable to another.|
|Variable rate||a home loan interest rate that fluctuates according to the official cash rate set by the Reserve Bank of Australia.|