Do you qualify for a low doc home loan?

May 14, 2011

Low doc loans have become increasingly harder to come by in recent years, but they are available. Normally, lenders require proof of income, assets and outstanding debts but low doc loans rely on borrowers to prove their income via a system called self-verification, rather than by providing the traditional paper trail.

This type of home loan is structured to help people who wish to use existing equity as loan security or who already have a deposit for a property, but have difficulty proving their earnings, such as casual employees, small business owners or sole traders not registered for GST. It is usually sought by people who want to renovate, invest in another property or shares, or expand their business.

Most lenders charge a higher interest rate for a low doc loan and also require you to take out mortgage insurance so they can be costly. Many will also require a 20 percent deposit and may also call for you to refinance in as little as 12 months.

You can generally borrow up to 80 percent of the property’s value but you may be able to borrow more depending on how much proof of income you are able to provide.

It’s crucial, however, that you thoroughly understand all the terms and conditions on a low doc home loan, as the terminology is complex.

Low doc loans come in three flavours:
Self-declared income: the borrower simply signs a declaration of income and is not required to provide any proof of income.
Accountant statement: applying for a low doc loan with the help of a signed statement from your accountant can help bring your interest rate more in line with standard loans.
Asset lend: no documentation required at all. The loan is granted based on the value of the property but interest will be charged at an inflated rate.

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