The name Low Doc is used because documents required for support of the loan application is reduced, but they should have and provide evidence of business financials for the past two years, some banks only require one financial year which it depends on the lender requirements. Before 2006 there was no requirement for Low Doc loans and no evidence of income, you only needed a declaration that you have the capacity and ability to afford and be able to repay the loan. After the GFC the NCCP and ASIC introduced Responsible lending requirements by law.
Low Doc loans is generally used for self-employed, self-emplyed with irregular income or cash flow, small business owners or contractors, because in most cases providing income payslips or income proof documents at the time of application is difficult.
Some Examples of Evidence
- Last Financial years statement
- some evidence of income for indication
- Draft Financials
- Accountants letter
- BAS statements
- Registered ABN for a period, depends on lender requirements
- have a clear credit history
The most common reason for the loan application is for business or investment purposes or just applying for refinance or loan consolidation or purchase of new home.
LVR is calculated on a different percentage usually again depending on the lenders requirements.
For an example the usual LVR for a high doc loan is between 90% to 95% depending on the bank lender and for Low Doc loans its usually 70% LVR these figures mean this will be the minimum threshold before the bank or lender could even think of accepting your application, you can be below and below is better but not higher.
Lenders are always calculating risks, for the banks they need to measure your capacity to repay the loan, with higher risks there is always a catch and for the banks or lenders they will usually charge a slightly higher interest rate for the higher risk level.
you can get these Low Doc loans from conforming lenders and non conforming lenders.
Things to Consider for Low Doc loans
The borrower (you) should be careful of overstating your income position as later to experience repayment problems may be something to consider.
Do not overstate your income to the lender and understand your tax liability in their returns.
You will need to have a minium of 80% LVR which will be easier to have better chances of your loan being accepted by a wider range of lenders.
Really need to plan ahead in your consideration of applying for a loan, your financials are up to date and can prove you can afford the loan, speak to your accountant for clarification.
If you can provide all financial statements and tax returns then maybe a standard loan would be best suited to you, as this will give a choice of lower interest rates.
Call Gorila Loans, your local Sydney Mortgage Broker.