Lo Doc ( Low Doc ) or No Doc Loans are specifically designed for applicants who are self employed, seasonal workers and small business owners who have income and assets but may not have the traditional forms of income evidence such as financial statements or tax returns at the time of the application. This type of loan is quite flexible and includes a variety of features.
Loan Features of Low Doc Loans include the following:
* Borrowers have a clear credit history. Generally two small
paid defaults (under $500) are acceptable;
* Borrowers can demonstrate they have the between 5% and 20%
deposit to purchase the property;
* Self-employed applicants looking to borrow up to 80% LVR, may be required to prove they have a registered Australian Business Number (ABN) for a certain period of time;
* If you are self-employed or an investor, you most likely only need to
complete an income declaration form rather than provide proof of income;
* Low-doc loans are generally always mortgage insured although often the cost of the mortgage insurance premium is now being absorbed by some lenders in an effort to capture a greater market share;
Low Doc Loans generally mean a higher interest rate is paid by the borrower than the standard variable rate offered with a full doc product. However some lenders offer programs whereby providing the lender is happy with the borrower’s repayment performance, you can take up your loan as low doc and have it revert to full doc standard variable rate within 12 to 24 months.
Difference between a Low Doc and a No Doc Loan
A Low Doc Loan is a product where reduced documentation is required by the lender to verify the income of the borrower. This can be a self-disclosure statement by the borrower, i.e. you simply state your income by filling in a blank with the loan application form. Some lenders may also require a letter from your accountant.
A No Doc Loan does not require the borrower to disclose neither their income nor their asset position.
Many Lenders will only offer Low Doc and No Doc products to self employed persons as well as share traders, professional investors and the like, however there are some who also make these loans available to PAYE applicants.