( Less Documentation )
Another of our common specialist products is the low document or ‘low doc’ loan. These have been available in Australia for a number of years. Initially, they were only offered by non-bank lenders but as traditional banks began losing market share in this area they included them in their range of lending products. They fell out of favour somewhat during the GFC, but are returning to the market as confidence grows.
There are some major differences between mainstream and low-doc lenders. The main one is that low-doc lenders do not require traditional proof of income such as company financials or tax returns. Instead, borrowers generally complete a declaration that confirms they can afford the loan. This is known as self-certification. These loans are particularly attractive to self-employed or full-time investors who may have difficulty showing a high level of income, as a result of either writing off a number of expenses, reinvesting profits into a business, or being slow in lodging their tax returns.
“Low-doc loans are a flexible solution for self-employed people who have income and assets, but are unable to provide the required financial statements or tax returns at the time of application,” says Andrew Clouston, managing director of Club Financial Services. “However, borrowers should be aware that interest rates and fees are higher with low-doc home loans. Lenders mortgage insurance (LMI) fees often applies and they are usually capped at 80% of the valuation of the property.”
Indeed, one of the key components of a low-doc loan is the lenders mortgage insurance. LMI essentially protects the lender against any loss should the borrower default on the loan. While traditional loans typically require LMI if you are borrowing more than 80% of the property’s value, low-doc loans often require LMI if you are borrowing more than 70% – and in some cases 60%.
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