low doc loan

what are low doc or alt doc home loans?

a concise gide for australian borrowers

what are low doc or alt doc home loans?

Low Doc or Alt Doc home loans are designed specifically for individuals who cannot provide the usual financial documentation often required by traditional mortgage providers.

These loans are specifically designed to meet the requirements of small business owners and self-employed individuals, who do not have traditional income sources or the necessary documentation like company, business, or personal tax returns, or profit and loss statements.

They offer the opportunity for these individuals to potentially secure a home loan by providing alternative evidence of their financial stability, mitigating the barriers faced in the mainstream lending process.

Understanding the nuances of Low Doc and Alt Doc home loans is essential for self-employed borrowers to enable them to make informed decisions.

While these loan options can provide a viable route to home ownership for those with non-traditional income documentation sources, they also typically come with higher interest rates and fees compared to standard home loans.

This is due to the perceived higher risk associated with borrowers who lack traditional proof of income documentation. Navigating this lending landscape is best done with the guidance of a professional mortgage broker, however having some knowledge of the advantages and drawbacks of these loan products can help you to make the right decision for your individual financial situation.

Key Takeaways

  • Low Doc and Alt Doc home loans cater to self-employed borrowers, contractors, and freelancers who cannot provide traditional income documentation.
  • These loan options can enable non-traditional borrowers to secure a home loan, but often have higher interest rates and fees compared to standard home loans.
  • Understanding the pros and cons of Low Doc and Alt Doc home loans is crucial for making an informed decision based on one’s individual financial situation.

Defination and Purpose

Low Doc and Alt Doc home loans are types of mortgage loans designed primarily for self-employed individuals and small business owners, who may struggle to provide the standard documentation required by traditional lenders. These loans cater to the financial needs of borrowers with unconventional income sources or those who cannot supply the extensive paperwork demanded by regular home loans.

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Understanding Low Doc and Alt Doc Home Loans

Common Eligibility Criteria

To be eligible for a Low Doc or Alt Doc home loan, you must typically:

  • Be self-employed or a small business owner
  • Have an Australian Business Number (ABN) that’s at least 6 months old
  • Demonstrate a stable income, even if it varies month-to-month
  • Have a satisfactory credit history

Be mindful that lending criteria varies among lenders, making it crucial to consult a mortgage broker who can offer guidance and support in evaluating your options thoughtfully.

Key Features of Alt and Low Doc Loans

Documentation: Low Doc and Alt Doc loans generally require less documentation compared to standard home loans. The most common forms of income verification include Business Activity Statements (BAS), business bank account statements, or an accountant’s declaration.
Interest Rates: Due to the higher perceived risk associated with these loans, lenders may charge a slightly higher interest rate compared to regular home loans. However, if you maintain a good repayment history and demonstrate financial stability, you might be granted a rate reduction in the future.
Loan-to-Value Ratio (LVR): The LVR represents the amount borrowed compared to the property’s value. Low Doc and Alt Doc loans may have a lower maximum LVR than traditional home loans, meaning you may need to provide a larger deposit or use equity in another property.
Don’t forget, consulting with a mortgage broker and comparing loan options can aid in finding the right low doc or alt doc home loan for your specific circumstances.
Low Doc or Alt Doc loans have the potential to assist…
Self-Employed People without full documentation required by mainstream lenders
If you’re a self-employed individual or business owner in Australia, you might face challenges when applying for a home loan or investment loan through traditional banks and lenders. These mainstream institutions typically require extensive documentation to verify your income, such as full financials for your business and tax returns.
However, as a self-employed person, you may not have all these documents readily available, or your income may fluctuate, making it difficult to satisfy the requirements of mainstream lenders.
This is where low-doc loans or alt-doc loans may be able to help. These home loans are, as mentioned above, specifically designed for self-employed borrowers who can’t provide the full documentation required by mainstream lenders.
Typically, in order to proceed, you will need to be capable of providing alternative documentation, which might include:

o Business bank statements from the last 6-12 months
o BAS statements for the last 6-12 months
o Personal bank statements
o ABN and GST registration
o Accountant’s letter confirming your income
o Various other documents

The approval process for these loans usually takes into account factors such as your income verification, credit history, and credit score, ensuring that you’re still assessed as a responsible borrower based on your history and financial position.

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