Low documentation (lo-doc) loans are designed primarily for self employed applicants who cannot meet the normal lending criteria of traditional banks which usually included the provision of 2 years financial statements and tax returns. Just because you do not have this information does not necessarily mean you can’t borrow money and a lo-doc loan maybe for you. The requirements for a lo-doc loan include a normal loan application being undertaken with evidence of assets and liabilities being provided however documents to verify income are normally reduced.
Previously lo-doc loans were provided on a self verification basis where you declared your income and this amount was relied upon by the lender to determine if you met their borrowing criteria. More recently from the 1st January 2011 the Australian Government introduced new responsible lending regulation which places a duty of care on all lenders to ensure you can afford any loans they provide. This requirement has seen significant changes to the lo-doc loan marketplace and when full income verification information is not available other documents may now be required which can include the following;
- BAS statements
- Accountant declaration
- Bank account statements
Whilst the provision of this additional information is now sought for lo-doc loans it still represents a significant reduction in information provided for a fully verified loan.
Most Lo-doc loans are also subject to certain requirements which vary between lenders however normally include the following;
- Applicants must have held a current ABN for a minimum of 12 months and be registered for GST if applicable.
- A maximum Loan to Valuation Ratio (LVR) of 80% is applicable.
- Lenders Mortgage Insurance is required for loans with a LVR between 60% and 80%.
- Generally a slightly higher interest rate is applicable for lo-doc loans to reflect the risk of the lender being unable to fully verify your income.
Lo-doc loans are not for everyone however can represent an appropriate financial product solution for financially responsible borrowers who cannot normally meet full income verification requirements.
At Professional Finance Brokers our home and business finance specialists understand that being self employed does not mean you can’t borrow money and depending on your circumstances we can assist tailor a complete financial solution to meet your business or individual needs.
So if you would like more information on lo-doc loans and would like to talk to one of our home or business finance consultants call us on (07) 3349 9044 or contact us now.