What is a low documentation home loan?
Low documentation or low doc loans are for self-employed people who cannot provide all of the documentation that is required to get a normal home loan.
Low doc home loans are not the same as non-conforming home loans. Low doc home loan interest rates have decreased over the years but usually the interest rates available on these types of home loans are slightly higher than the standard variable rate for normal home loans.
The major differences between normal / full doc home loans and low-doc loans are as follows:
- low doc home loans do not require the usual proof of income documents such as company financials and / or tax returns;
- low doc loan applications generally require the applicant to complete a declaration that confirms they can afford the loan. This is known as income self-certification;
- Low doc loans tend to be more attractive to self-employed people or full-time investors who have a problem demonstrating a high level of income. This can be due to writing off a expenses, reinvesting profits into a business, or having not lodged recent tax returns.
Self-employed people wishing to get a low doc loan will normally need to:
- Self-certify their income;
- Confirm that they are self-employed by having an registered ABN or accountant’s letter; and
- Have a clean credit history (some lenders will allow bad credit low doc home loans for people with bad credit under certain circumstances);
- Be able to demonstrate repayment on existing or previous loans.
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