Lo Doc loans are predominantly for self-employed applicants, to provide these applicants with an alternative method of verifying income in the event that the business and personal tax returns haven’t been completed.
Since the introduction of the NCCP Act, Lo Doc loans have been under scrutiny and most lenders are frequently adjusting their policies to ensure they conform to the NCCP Act.
Things to understand about Lo Doc loans:
Who is eligible for Lo Doc loans?
In most cases, to be eligible for a Lo Doc loan, the main applicant needs to be self-employed, and depending on the structure and income declared, there could be various requirements that change from one lender to the next.
The most common requirements are:
- You need to have a registered ABN for a minimum of 24 months, however in rare circumstances you may be eligible after 12 months
- You need to have a minimum of a 20% deposit or equity in a property plus LMI
- If your declared income is over $75,000 per annum, you need to be registered for GST for a minimum of 12 months.
How are lenders different?
Each lenders policy on Lo Doc loans can vary considerably, and depends on their risk model and understanding of self-employed applicants. This is where I can assist you. By understanding your individual situation, I can then look at my lenders policies to see where you are most likely to be approved.
Most lenders require a maximum LVR of 80% on Lo Doc loans and this needs to include lenders mortgage insurance (LMI). LMI is usually required above an LVR of 60% with Lo Doc loans, however some lenders will go to a 70% LVR with no LMI, again this will rely on other criteria being met.
One of the biggest variances between lenders is policy and interest rate. Usually the more flexible the policy is, the higher the interest rate will be. This comes down to risk. If you provide more information to substantiate your declared income, this will reflect on the interest rate delivered by the lender.
This is where my service becomes invaluable. By looking at all the options for your declared income, I will shop around for the right loan and most competitive Lo Doc loan interest rate for your situation.
What are the key differences between Lo Doc loans?
Although they are called Lo Doc loans, this is not always the case these days, especially with the introduction of the NCCP Act. Just because the income verification might be a little more relaxed, all other areas of the assessment are much more stringent. In most cases the below areas are usually not negotiable.
Clean credit
Your credit file is your financial fingerprint and many people don’t realise how easily companies, banks and even councils can lodge defaults on your credit file. This can inhibit future credit applications, so guard it with your life. If you have defaults, there are ways to make sure they have been correctly listed.
Reasonable income
If you are declaring an income, the lenders have industry standards they work off. Your income will need to be inline with these standards. For example, a share trader with a declared annual income of $200k, but only has a share portfolio of $50k would not be considered to have a reasonable income.
Loan Amount
Lo Doc Loans will generally be capped depending on the lender. The common maximum exposure is $1m, which can go up to $2.5m with some lenders.
Refinances
For refinances, in most cases it will be a dollar for dollar refinance for Lo Doc loans with no cash out. In addition to this, most lenders won’t refinance Lo Doc loans as these loans are meant to be short term.
Security
The preferred security for these types of loans is normally prime security only, meaning in metro areas or close to towns of 100,000 people or more.
What are the accepted types of income verification?
Below are the various types of income verification that may be required for Lo Doc loans under the current policies. Unfortunately, these are subject to change, and they change regularly, so please contact me for further confirmation.
12 months BAS
This form is used to verify turnover, and lenders use various calculations based on industry type to work out if declared income is feasible based on your turnover.
Business bank statements
Much like BAS, this will verify income over a period, and is then used to estimate annual turnover, to make sure this is inline with income declared.
Accountant’s letter
Lenders who accept this will generally have a template for this letter. The accountant will need to sign and verify that the income declared is reasonable based on business history.
Older tax returns
For these to be accepted, you will need to provide current MYOB or Quickbooks printouts to support the older figures to show consistency.
No documentation
There are very few lenders that will only require an income declaration to be supplied by the applicant. In those cases, this is reflected in the interest rate, which will generally be quite high.
Find out more or apply for a Lo Doc Loan
If you think a Lo Doc loan might be an option for you, or would like to find out more on which lender has the most competitive interest rate, or who is offering the cheapest mortgage insurance, then please contact me. You might also be interested in the Loan Review and Loan Preparation Tools.