The Myth and Reality of No Doc and Low Doc Loans
Searching for ‘no doc’ loans in Australia? You’re not alone. No doc and ‘low doc’ loans are in the spotlight thanks to the growing number of Australians who are now self-employed. According to the latest statistics collated by GlobalData, there were 2.2 million self-employed workers in Australia in 2021. That’s an increase of 7.2% compared to 2010, and it’s expected that this figure will only continue to grow.
So, what’s the connection between being self-employed and no doc loans in Australia? It’s all about the paperwork. Traditional home loan applications are notorious for requiring a long list of financial documentation – something that can be difficult for self-employed people to provide. In contrast, low doc loans are specifically designed with self-employed Australians in mind.
Understanding No Doc vs. Low Doc Loans
There’s a lot of confusion about the availability of no doc loans in Australia. Just to be clear, no doc loans in Australia have now been phased out by the majority of lenders.
Why is there still so much interest in no doc loans in Australia? No doc is an abbreviation for ‘no documentation’. They also used to be known as the ‘no proof of income’ home loan option, because a borrower didn’t have to provide any proof of how much they were earning as part of the application process. However, after the National Consumer Credit Protection Act 2009 was introduced, lenders became more conscientious about responsible lending criteria. At this point, most lenders stopped offering no doc loans in Australia.
No Doc Loan Alternatives in Australia
So, what are the no doc loan alternatives in Australia? Fortunately, self-employed borrowers still have access to a home loan product tailored to their unique needs. Low doc (short for ‘low documentation’) loans are a fantastic and, ultimately, more responsible alternative to no doc loans. And with the increased demand for no doc loan alternatives in Australia, there is now a growing number of lenders offering competitive low doc loans.
To find out more about no doc loan alternatives in Australia, talk to an experienced mortgage broker today.
Understanding Low Doc Loans in Australia
Low doc loans in Australia are a great option for anyone who can’t provide employer payslips, Pay As You Go (PAYG) slips, recently completed tax returns or other financial statements that provide proof of income. The key difference in understanding no doc vs. low doc loans is in the type of paperwork required. While a no doc loan meant you didn’t have to prove your income, a low doc loan allows for a more flexible approach to proving how much you earn. It’s seen as a more responsible loan product because it ensures you’re not committing to a loan that you won’t be able to repay.
Eligibility and Requirements for Low Doc Loans in Australia
A low doc loan is designed to meet the borrowing needs of small business owners, seasonal or contract labourers, freelancers, those relying on an investment-generated income and other Australian Business Number (ABN) holders. Just like a traditional home loan, having a good credit score will give you access to more competitive interest rates and more flexible loan options.
While the low doc home loans Australia has access to don’t require standard proof of income (such as payslips from an employer), lenders still have to take reasonable steps to confirm you can afford the loan. For this reason, most lenders will usually require a combination of the following documents:
- Declaration of income: This is one of the most common documents required by lenders when a borrower is applying for a low doc loan in Australia. This signed declaration is used to confirm your income, any existing liabilities and other requested financial details.
- Business Activity Statements (BAS): If you’re self-employed or running your own business, lenders may ask for copies of your Business Activity Statements for the past 1-2 years (as added proof of your income).
- Recent bank statements: The lender will often ask for copies of recent bank statements (usually for the past 3-6 months). These statements help lenders assess your ability to manage your finances, especially cash flow.
- Letter from your accountant: It’s also quite common for lenders to request a letter from your accountant confirming the financial information you’ve provided is accurate.
- Assets and liabilities declaration: This document provides a brief overview of your current net worth by listing your assets (investments, savings, etc.) and liabilities (car loans, credit card debt, etc.). Lenders may use this as a guide to assess your financial health and ability to meet mortgage repayments.
What are the Risks of Low Doc Loans in Australia?
Low doc loans can be a great option for self-employed borrowers seeking no doc loan alternatives in Australia. However, they can include certain disadvantages when compared with a more traditional loan product. These include:
- Higher interest rates: A lender may charge higher interest rates for a low doc loan compared to a standard mortgage. This is done as compensation for the perceived higher risk associated with low doc loans.
- A bigger deposit: You may need a larger deposit to secure a low doc loan in Australia. Some lenders may ask a borrower to provide a deposit that is equal to at least 20% of the property’s value (significantly more than what you might need for a traditional home loan product).
- Reduced borrowing power: Low doc loans may come with reduced borrowing power because they usually have a lower loan-to-value ratio (LVR). This means you won’t be able to borrow as much of the property’s value (compared to a standard mortgage).
- Shorter terms: Some low doc loans come with shorter loan terms, which means you’ll have to pay more per month to service the loan.
While there are certain risks associated with low doc loans, these can be successfully managed. An experienced mortgage broker will be able to talk you through the process and provide advice tailored to your situation.
What are the Benefits of Low Doc Loans in Australia?
A low doc loan can be the ideal solution for a range of borrowers who might otherwise struggle to obtain a loan. In Australia, the benefits of low doc loans include:
- More flexibility if you’re self-employed: For self-employed borrowers, low doc loans provide a more flexible approach to proving your income.
- A simplified application process: Low doc loans offer a simpler application process because fewer documents are required. This can have the added benefit of speeding up the approval and settlement process.
- Greater access to buying a property: Low doc loans make it easier for more people to secure mortgage approval. This includes those who are self-employed, small business owners, freelancers and contractors.
- Customised loan products: Some lenders now offer a variety of low doc loan products. This makes it easier for borrowers to choose the terms and features that best suit their financial situation.
Talk to a Mortgage Broker About Low Doc Loans in Australia
While low doc loans can be a fantastic solution for many borrowers, they’re not all created equal. Some lenders offer low doc loans with a higher LVR (up to 90%), but this may also come with a much higher interest rate. Other lenders may only approve loans with an LVR of 80% or less, but their loan products may offer much more competitive terms. To make sure you’re getting the best home loan to suit your needs, you need to start by getting the best advice.
A broker with experience in low doc home loans can answer all your questions and compare suitable loan products from a wide range of lenders. By consulting with a broker, you can have confidence that you’ve made the right choice in applying for your home loan.
North Brisbane Home Loans: Providing an Alternative to No Doc Loans
If you’re looking for an alternative to no doc loans, then North Brisbane Home Loans can help. Our friendly team of experienced brokers will happily talk you through all of your available options and provide expert advice on which loan product will best suit you.
If you’re ready to take the next step towards owning your own home, then contact North Brisbane Home Loans today to book a free appointment.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
