Low-Doc Loans: 3 Good Ways To Get Approved

How Difficult Is It To Get A Loan Approved?

Meeting the criteria for having a low-doc loan approved these days is much more difficult than ever before. Loan providers prefer low risk lenders which has had a direct impact on the ability of self-employed individuals having their mortgages approved.

This has resulted in some major changes being made to stated income loans and low doc loans which have been the primary home financing option for the self-employed.mortagage brokers

In fact, changes have been so drastic that private financial institutions have entirely eliminated stated loan applications where lenders need to certify their own income.

Low doc loans have therefore become the main and sometimes the only option available for self-employed individuals, besides those short term loan alternatives.

What Are The Requirements For A Low-Doc Loan?

Low-doc loans don’t actually mean that no paperwork is required for a loan to be approved but rather that the loan requirements are not traditional.

Due to the fact that payslip and tax returns cannot be used to determine individual income, other means must be used to accurately assess the income of a self-employed individual. Previous tax returns are not suitable for this purpose as deductions for expenses provide inaccurate figures.

The income verification system for low-doc loans is therefore more complicated. Applicants need to submit bank statements, proof of assets and a Business Activity Statement, all of which need to be verified and certified by a public accountant.


What Are The Additional Requirements for the self-employed?

Applicants need to provide information for a specified period of time which normally means that they need to be self-employed for a period exceeding 2 years.

They need to demonstrate sound accounting and record-keeping practices in order to prove the success of the business. Additional security may also be necessary in the case of unverified income statements.

A credit rating of over 700 and proof of value of assets to the tune of 25% of the required loan amount may be required.

A deposit or down-payment of at least 20% of the purchase price of the property will also be necessary. Emergency reserves to cover mortgage repayments for a period of between 6 and 12 months may also be requested.

Who Qualifies For A low-Doc Loan?

Most self-employed individuals who are able to meet with the above criteria low-doc loansqualify for a low-doc loan. However, this does not necessarily mean that the loan amount will be approved.

All types of financial institutions and loan providers have restricted the approval process due mainly to the impact of the Global Financial Crisis on the industry as well as the increased rate of defaults on these types of loans.

While it may currently be more difficult to receive approval for low-doc loans, it is not impossible for self-employed individuals to obtain a mortgage by taking this route.

Low Doc Home Loans: 6 Reasons They’re The Best Choice

What Exactly Are Low Doc Loans?

A Low Doc Loan or a Low Doc Home Loan is something that was created in order to smooth out the process of applying for a loan for borrowers who are self-employed, considering how much this sector of the population is growing in size.

Low Doc Home Loans are commercial and residential loans intended to assist individuals that have the financial resources to make payments on a loan but are unable to come up with the minimum documentation needed to prove their income.my recent brokers

In traditional circumstances, a lender would ask the potential borrower to give them a minimum of two years worth of tax returns or audited financial statements.

A number of business owners find that keeping their paperwork current is hard to do, and many financial institutions understand this.

Low Doc Home Loans are in essence the same as any other bank loan. They can come with either a fixed or variable rate interest arrangement, although the interest rate might be a little higher than standard in order to compensate for the additional risk a financial institution takes with lending to such a borrower.

Comparing A Bad Credit Loan To A Low Doc home Loan

No one should get a Low Doc Loan confused with a Bad Credit Loan. Just saying the phrase “bad credit” carries the insinuation that the borrower in question has had difficulty keeping up with bills or has even filed for bankruptcy in their past.

A Low Doc Loan is not just something for individuals with sub-par credit, as they’re intended to help self-employed individuals or people who own a small business with the mountain of paperwork involved in getting a conventional loan.

In many cases, the actual credit level and rating of the borrower does not matter, as the loan has to be secured using assets the borrower has as collateral.

This can be money, property, or even a business. Australian banks routinely look for concrete evidence that payments for any new loan can be handled financially without risking the borrower’s power to keep up with his or her normal living expenses.

How Much Can Be Borrowed from a financial institution?

Loans like this are pretty much like any other. Normal lenders let individuals borrow up to four-fifths of the provided security value.

A number of financial institutions let someone borrow a maximum of $2.5 million, if that amount falls between three-fifths and four-fifths of the provided security value. If you are looking for more than four-fifths, then you need to shop around, as well as think twice about whether or not you can make those payments.

For What Purposes Can I Borrow?

Any legitimate purpose is a reason for approved borrowing. Common situations include car loans, investing in a property for flipping or rental income, owning a property to live in, or even just to help build or grow your business.

Self-Employed Low Doc Loans

If you are self-employed or run your own company, you might not have all the required documentation for a conventional bank loan. Low Doc Loans are possible solutions that can help you get the financing you need without the normal piles of tax returns, financial statements, and other paperwork involved.

Businesses just starting out often use such a loan to gain the resources and capital they need to get off the ground. As a business gets into the repayment schedule and organizes financials more, such loans are often refinanced to lower interest rates or friendlier terms and conditions.


Low Income Individuals Using A Low Doc Loan

If a person with a low income is thinking about a Low Doc Loan, then it is essential that person sit down and do an accurate budget projection stretching out several years into the future.

Such documents might not be necessary for a loan application, but a bank or financial institution is going to be very interested in you meeting the minimum requirements for repayments.

On top of this, such a loan has to be anchored to assets, of which only four-fifths of the value can be borrowed against. Failure to keep to the repayment obligations can mean the bank or financial institution reclaiming the secured assets in order to pay off the loan.

Who Out There Offers A Low Doc home Loan?

Low Doc Loans are a product and service that are offered by the majority of financial brokers and lenders, on top of credit unions, major banks in Australia, and even some home building societies.

It’s wise to start with the big banks first. A short consultation with a mortgage professional to talk about conditional preapproval for a loan can clear things up for you about the limitations and responsibilities you will have in such a monetary situation.

3 Points Why Low Doc Loans Are Better For The Self Employed

Are The Banks Finally Coming For Low Doc Loans?

Traditionally, when it came to applying for financial assistance, the person who is self-employed is commonly left out, leaving him or her at a significant disadvantage.

Since income and financial documentation play a role that is vital during the process of approval, this often means that sole traders fail to provide the relevant parties in the financial institutions with the paperwork that is required to obtain a loan.recent brokers news

Fortunately for those that are self-employed, money lenders have finally come into realization that there is a great deficit in this area of the market and so they are working hard to open up the market for these kinds of business people; especially through low doc loans.

This has been achieved through the provision of low doc car and home loans which have been designed specifically for those individuals who do not have the supporting documentation required to get a conventional loan.

So, who can apply for low doc loans? 

Essentially, these kinds of loans have been designed specifically for any person who does not have income documentation that can support a conventional loan application. These loans can be very useful if you are a sole trader, independent consultant, contractor or any other person who is engaged in a changeable employment situation.

Over a very long stretch, people have been faced with great challenges when it came to getting finance for their business activities. Usually because they found themselves in a situation whereby they were unable to show proof of a long term and stable personal cash flow.

These types of loans make it possible for a person who does not have evidence of a long pay slip to pay for items they would otherwise find it impossible to acquire.


How do low doc loans work for the self-employed? 

Low doc loans are not much different from conventional loans. They work pretty much the same except for the fact that they require very little paperwork. With the reduction of paperwork however, there is a catch.

The interest rates applied on these loans are slightly higher than those charged on conventional loans. But if you have the ability to make payments above your minimum schedule payments then you will be on the hook for a lot less time, saving you lots of money in interest rates.

The fact that these loans entail less documentation does not necessarily mean that all other factors considered in evaluating whether a person qualifies for a loan will be put aside. Some factors like presence of security for default of payment and credit score will still play a great role in getting you the loan. Provided you have a good credit history, then getting a loan will probably not be very difficult.

Are they the Answer to your financial documentation?

A low doc loan does not exempt you from providing the lender with proof of your ability to pay. Since they will not require work or financial documentation such as your pay slip, they can opt to ask for banks statements so as to have proof that you have the capacity to pay back the loan.

Once these statements can satisfy the lender’s lending criteria, you are one step closer to getting your loan.

One of the most antagonizing aspects of being self-employed is getting finance for your business. You may be confident in your abilities to afford the loan, but it is difficult to convince a lender without relevant documentation. If you are in such a situation, then a low doc loan is a great option for you.