What are low-doc loans?

What is a low doc home loan?

Low-documentation or low-doc loans are for people – generally the self-employed – who have difficulty getting the documentation together that is required to get a traditional home loan.

Low-doc loans differ from another relatively new loan in the marketplace that is also gaining popularity – non-conforming loans. Low-doc loans have become very popular over the past few years and industry figures state they comprise around 10 per cent of all mortgage loans written.

Traditionally, the interest rate offered on these types of loans was higher than for the standard variable rate but recently they tend to be offered at similar rates. While lenders have various methods of establishing whether they will lend someone money, there are some major differences between mainstream and low-doc loans.

Differences between standard and low-doc loans

· Low-doc loans do not require traditional proof of income such as company financials or tax returns.
· Borrowers seeking a low-doc loan generally complete a declaration that confirms they can afford the loan. This is known as self-certification.
· Low-doc loans tend to be more attractive to self-employed people or full-time investors who may have difficulty showing a high level of income, as a result of either writing off a number of expenses, reinvesting profits into a business, or being slow in lodging their tax returns.

Borrowing tips

Borrowers wishing to obtain a low-doc loan will normally need to satisfy three requirements:

· Self-certify their income
· Confirm their self-employment status (if appropriate) – usually with a registered ABN or accountant's letter
· Have a clean credit history and good repayment record for existing or previous loans.

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