What is a Low Doc Loan?
A Low Doc Loan is offered to borrowers who are self-employed but cannot provide income evidence, tax returns or financial statement.
How long you need to be self-employed to be eligible for this loan?
Many lenders require you to be self-employed for at least 1-2 years. However, some specialist lenders only require 1 year.
How much can I borrow?
- Up to 95% of property value, with 1-2 years of tax returns
- 80% - 90% of property value, with little income evidence or low doc loan
- Up to 80% of property value when self-employed for less than one year.
How is my income calculated for the purpose of the loan?
Lenders can use any one or more of the following to determine your income for loan purposes
- Lowest figure of the last two years
- The most recent year’s income
- The average of two years income
- 120% of the lowest income
They may or may not add back the expenses.
What is an “add back” of expense?
Your taxable income is not your actual income that you can use to pay your loan commitments. So, the lenders may add back some of your expenses that you have incurred for tax purposes but did not result in actual cash outflow, such as depreciation of business assets.
What to consider when choosing a loan?
- Higher interest rate. However, some lenders can offer the same interest rate as a fully documentation loan.
- Larger deposit, usually at least 20%. Some lenders will require less.
- LMI usually applies when borrowing exceeds 80% of property value.
How to get approved?
- At least 2 years of tax returns and financial statement is required.
- Some lenders allow 1 year tax return with other alternative proves of income.
- If you have just started your business, then depending upon your circumstances, you may get a loan without tax returns. For example, where you were working as an electrician for 5 years and have now started your own business. Based on your industry experience, some lenders may consider your loan without tax returns. You will have to make a strong case before filing your application. Consider consulting an experienced mortgage broker who will help you build the case.
- Go for a loan only when you feel that your business is stable.
