We’re often told in order to buy your own home you need provide proof of a steady income. But for some, this isn’t always possible. Small business owners, for example, who are self-employed, might be unable to provide the required documents to prove a regular income. In this instance, a low doc home loan can help you finance the purchase of your new home.
What is a low doc home loan?
A low doc home loan, in simple terms, is a type of home loan that requires low income related documentation from the home loan applicant. Lenders often use evidence of a steady income, along with other factors, to assess an applicant’s ability to repay a home loan. But with a low doc home loan, your lender will assess your application on other factors.
Try a low doc home loan.
Similar to a no doc home loan, a low doc home loan requires minimal documentation about income. They’re usually offered to small business owners, who might not have access to required documents (financial statements and tax returns) required for usual home loans.
Features of a low doc home loan
When it comes to comparing low doc home loans, many features will be the same as a regular home loan. However, because low doc home loans are sometimes seen as a high-risk, your lender might have slightly different requirements. Carefully consider how each feature impacts your loan and the total amount of your repayments.
• Interest rate: Similar to other loans, your interest rate will impact the amount you pay over the life of the loan. You’ll likely have the choice of a fixed or variable interest rate. Often, a fixed rate will only be offered for a set period of time (e.g. the first five years of the loan). A low doc home loan might also come with a higher interest rate than a standard home loan, but you can often refinance to a mortgage with a lower interest rate after 12 months.
• Loan-to-value ratio (LVR): Lenders will usually require you to take out Lenders Mortgage insurance (LMI) if the amount of the mortgage is more than 80% of the value of the property. But when it comes to low doc home loans, lenders might have different requirements. This can increase your total loan amount.
• Refinancing: Once you’ve taken out your mortgage, and proved you can make repayments on time, you might be able to refinance. This is an opportunity to change your low doc home loan into a regular home loan, with a lower interest rate. Keep in mind any additional refinancing fees, which will be factored into the total amount of your loan.
When applying for a low doc home loan, applicants might need to provide:
• Business Activity Statements (BAS) from the past 12 months.
• An Australian Business Number (ABN) or Certificate of Incorporation for a business at least 12 months.
• Evidence your income is registered for GST.
• Evidence of equity in another asset.
Like any financial investment, take the time to carefully do your research online. Once you find a few loans you like, use our loan comparison calculator to help you decide which loan will work best for you.
If you’re a small business owner in the market for a new property, start comparing low doc home loans with us today.