How to Choose The Right Low Doc Home Loans
The right low doc home loans are the ones that best suit your personal financial situation – there’s no “one size fits all”.
Low doc home loans require different documentation than standard home loans. But, they still offer various types of home loans and the additional benefits that come with them.
We’ve compiled this guide to map out the different types of low doc home loans so that you can choose the best low doc home loans for you.
How Do Low Doc Home Loans Work?
Low doc home loans are an option for people who cannot access a standard home loan application due to insufficient documentation.
Some documentation required is the same as a standard home loan, such as proof of identification and credit history, but the difference lies with proof of income.
A standard home loan application requires at least three months worth of payslips to prove employment and a consistent income and or 2 years worth of tax returns and financial statements if you’re a business owner.
Most commonly, the types of people eligible for a low doc loan include:
- those who are self-employed,
- small business owners,
- freelancers,
- sole traders,
- contract workers, and
- seasonal workers (such as self-employed farmers).
Low doc home loans are often also called alt doc home loans. A low doc home loan just requires alternative documents to prove employment and income.
These can be:
- a Borrower’s Income Declaration indicating your ordinary income that’s signed,
- proof of your registered business name of more than 24 months,
- a copy of your Australian Business Number (ABN) registration,
- proof of GST registration,
- copies of your business activity statements (BAS), profit and loss statements, business bank statements, or any other relevant financial statements, and
- a letter from your accountant verifying your financial position.
What Are the Different Types of Low Doc Home Loans?
Not all lenders offer low doc loans. Some who do might be non-bank lenders. Either way, those who provide low doc loans generally offer similar types of home loans that are available to people applying for a full doc loan.
Owner-Occupied Low Doc Home Loan
In the case of an owner-occupied low doc home loan, you buy a property that you’ll live in for the foreseeable future.
Investment Low Doc Loan
This type of low doc loan is used for buying a residential investment property or small group of units.
Construction Low Doc Home Loan
If you want to build your own home, a construction loan has a progressive drawdown payment structure where money is released in stages to pay the builders at different milestones. Interest is charged only on the funds released.
What Types of Interest Are Available With Low Doc Home Loans?
When it comes to the interest rate, you could choose one that remains fixed, one that fluctuates (variable), or a combination of the two (split home loan).
How you pay your interest can either be together with your monthly mortgage (principal and interest), or you can opt to pay off your interest first.
Fixed-Rate Low Doc Home Loan
A home loan with an interest rate that’s fixed means that the interest rate remains constant for the entire duration of your home loan term.
Choosing a fixed interest rate can be a good idea if the interest rate is low when you’re buying your house. That way, if the interest rate goes up, you can enjoy the rate you signed up for regardless of how high the interest rate goes. Of course, the opposite is also true, and if interest rates go down, you’ll be stuck paying higher interest on your low doc home loan.
Variable-Rate Low Doc Home Loan
A variable interest rate fluctuates with the markets. If interest rates go up, so will the interest rate on your low doc home loan, and vice versa.
This type of low doc home loan interest rate generally comes with features that can be beneficial.
Split Low Doc Home Loans
A split home loan divides a portion of your home loan into two parts, one with a variable interest rate and the other is fixed.
Principal and Interest Monthly Repayment Option
A principal and interest monthly repayment option contributes to both your principal and its interest – you pay both off simultaneously.
Interest-Only Monthly Repayment Option
This option entails paying off the interest amount first. Once that’s complete, your monthly repayment amount will increase as you begin paying off your principal.
What Loan Features Do Low Doc Home Loans Offer?
If you choose a variable-rate low doc home loan, you will be eligible for two features: an offset account or a redraw facility. These are accounts linked to your principal that you can use to make extra repayments to your home loan principal.
Offset Account
An offset account is linked to your home loan, and you can use it as an everyday transactional account or a savings account and deposit extra repayments towards your home loan.
The amount of money present in this account is offset against your remaining principal every month, and you are only charged interest on the balance.
Redraw Facility
This is another type of savings account linked to your low doc home loan, but unlike an offset account, you can’t withdraw money out of a redraw facility without requesting to do so from your lender.
How The Mortgage Agency Can Help
At The Mortgage Agency, we assess your financial situation and discuss your future plans and goals. Then, we see how we can bridge the gap to reach them.
We can calculate your borrowing potential by looking at your financial situation, and establish which lenders will be a good option to apply with.
Then, we compare all the options available to you and discuss them thoroughly so that you can make the best, most informed decision.
Our brokers are experienced in navigating the best deal for our clients, ensuring the lowest possible rates, fees and charges.
Key Takeaways
Low doc home loans offered by some banks and non-bank lenders are made specifically to meet the needs of self-employed borrowers and other borrowers who don’t receive regular payslips but still have a good credit history.
Aside from the documentation required, a low doc home loan is similar to a full doc loan in terms of types of home loans available, interest rates and features.
There are three types of low doc home loans:
- owner-occupied low doc home loans,
- investment low doc home loans, and
- construction low doc home loans.
Each of those offers different types of interest rates:
- fixed interest rate low doc home loans,
- variable interest rate, low doc home loans, and
- split low doc home loans.
You can decide on how you’re going to make your repayments each month:
- a principal and interest monthly repayment option, or
- an interest-only monthly repayment option.
Lastly, while low doc loans require a slightly different application, you may still have access to features such as:
- offset accounts or
- redraw facilities.
Choosing which of these low doc home loan types, interest rates, and features best suit you can be a daunting task.
At the Mortgage Agency, we have mortgage brokers who can lighten the load for low doc borrowers.
We focus on critically assessing a borrower’s personal financial situation and assessing the best option to help them reach their home loan goals. We can identify who will benefit from a low doc home loan, and help them apply for one.
The criteria and requirements of applying for a low doc home loan can be overwhelming, so we can help you navigate the process smoothly. Years of study and experience allow our brokers to make informed decisions and give you appropriate advice tailored to suit your needs.
Contact us today, and let’s get started.
Disclaimer:
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property buyers and investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal, tax or investment advice. You should, where necessary, seek your own advice for any legal, tax or investment issues raised in your affairs.
