The definitive guide to low doc loans

If you’re self-employed, you can still find a loan that’s right for you.

Low doc loans use other income verification methods to lend money to qualified self-employed borrowers who don’t have the usual documentation.

Low doc loans are a great option for borrowers who are self-employed, independent contractors, or freelancers. These types of workers may not have the income documentation normally required to get a loan for a house, car, business, or personal matter. More and more Australians are sole traders or small business owners.

If you think you can’t get a loan because you don’t have the right paperwork, think again. Low doc loans can use alternative income verification methods to help show you can afford to repay a loan.

What is a low doc loan?

A low documentation or “low doc” loan uses alternative forms of income verification to assess loan suitability. Low doc loans are sometimes called “alt doc loans”, "no-doc loans" or “non-conforming loans”.

Rather than providing PAYG or PAYE payslips, self-employed borrowers qualifying for a standard home loan, are generally required to provide their lender with the last two years’ business and personal financial statements and lodged tax returns. However, because tax returns are lodged once a year it may be that your most recent tax return is more than 18 months old and isn’t reflective of your current income levels. This is where a low doc loan solution can really help.

Lenders that are more flexible will work with you to use alternative documentation to help evidence your true income position. For example, your business activity statements that you lodge with the tax office every month or every quarter are a useful way of verifying your business turnover, expenses and potential profit. Similarly your business and personal bank statements might show what salary you have paid to yourself over the last 12 months. This can be a helpful indication of your actual annual income levels.

Many business owners lean heavily on their accountant to help with managing their financial accounts and business activity statements. For this reason, some lenders will accept an income declaration from an accountant as a way to confirm the borrower’s personal and business income.

Low Doc Home Loans

Low doc home loans are available for mortgages on both owner-occupied and investment properties. A typical low doc home loan requires a 20% deposit contribution from the borrower. Besides the way the borrower’s income is verified, all other aspects of a low doc home loan are the same as for a standard home loan.

Low Doc Car Loans

Just like a low doc home loan, a low doc car loan is available to qualified borrowers who are able to verify their income levels using alternative methods rather than relying on annual tax returns.

Low Doc Business Loans

Low doc business loans can help self-employed borrowers by providing a source of funds for working capital, business growth or to buy inventory, equipment or even commercial property. Low doc business loans can also be secured against either commercial or residential property.

How long does it take to complete a low doc loan application?

How long it takes to complete a low doc loan application will depend on which type of loan you are seeking and which lender you go to. Typically non-bank lenders have a broader range of low doc loans than the banks, and are more accustomed to assessing self-employed borrowers using alternative income verification methods. When applying for a low doc loan, you want to choose a lender that is prepared to spend the time understanding your personal circumstances and business structure. These can get quite complicated and it’s important to work with a lender that doesn’t just put you in the ‘too hard’ basket. Speed is one thing, but an approval is what you’re after.

Are low doc loan interest rates the same as regular loans?

Low doc loan interest rates may be a bit higher than regular or full doc loans. But, if your credit score is good, your deposit is sizable and you can prove strong cash flow, the interest rate for a low doc loan can still be very similar. Also, if the loan is for business purposes, the interest may be tax deductible.

Can I get a no deposit low doc loan?

For low doc home loans or low doc business loans, lenders generally require deposits of around 20% of the property value. It is worth remembering that the more deposit you put in, the lower your interest rate. Further, there are lenders that do offer no deposit low doc car loans where the applicant’s asset position is strong. And there are also lenders who will provide a low doc business loan to provide cashflow to your business.

How do I compare low doc loans?

Numerous financial comparison websites exist to help borrowers compare competitive low doc loans from different lenders. You’ll want to compare not only interest rates, but also fees, features and repayment terms. It is important to note that when doing your research using a financial comparison website, many of these sites are paid by different lenders to promote their products. This means that there could be lenders who offer more attractive loans, but these don’t get showcased on the website. Also it is good to be aware that fees such as Lenders Mortgage Insurance (LMI) is not usually displayed on a comparison site and you will need to find this out directly with the lender or your broker. If you are considering a low doc loan, it is worth looking for lenders who specifically cater to self-employed customers or unconventional borrowers. These lenders are more likely to offer greater flexibility when assessing an application as well as have assessors with more experience reviewing complicated financial arrangements. You want a lender who will work with you to help find a way to get your loan approved.

Do I need a low doc loan broker?

If you are considering a low doc loan, it can be helpful to talk to a trusted finance adviser or mortgage broker. Not all brokers are experienced in providing low doc loans and it does help if you have an experienced broker on your side. It can be a good idea to ask your broker if they have access to a specialty lender on their panel. If your broker prefers to deal just with the major banks, then perhaps you might want to start looking at other service providers. Getting a low doc home loan, low doc car loan or a low doc business loan is something you want to get right, and get right the first time.

Contact a Liberty Adviser to find out a low doc loan could be the best solution for you.