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How do low-doc home loans work?

Low doc home loan

Low-doc home loans (often referred to as alt-doc loans) are for borrowers who may not have the usual documents for a standard home loan application. A low-doc loan may be right for you if:

  • You’ve been in business for less than two years
  • Your income is seasonal or irregular
  • You have income from combined sources, for example part time employment, investment income, rental income and/or running a business. 
  • You’ve recently switched between industries or between full-time employment and self-employment.

If this sounds like you, read on to find out what you need to know about applying for a low-doc home loan.

What do you need to provide for a low-doc loan?

A low-doc home loan comes with fewer requirements than a full doc home loan, but you still have to provide evidence of your income. The exact documents you need will depend on the lender, but may include:

  • Business bank statements
  • A letter from your accountant
  • Your ABN
  • GST registration
  • BAS returns
  • Tax returns if available

Some lenders will allow you to apply for a low-doc loan with a signed declaration saying that you can afford the repayments. These types of loans usually come with higher interest rates and fees than other low-doc home loans as they are considered higher risk.

Are alt-doc and low-doc home loans the same?

While the terms alt-doc and low-doc are often used to mean the same thing, there are some differences between the two. Generally speaking, with an alt-doc loan you will need to provide more evidence of your income than a low-doc loan, but with more flexibility than a full doc loan. 

The introduction of responsible lending laws in 2010 led to fewer lenders offering low-doc loans. For example, at Bluestone we don’t have low-doc loans, but we do offer alt-doc loans which are in line with the tighter lending criteria but still offer an alternative for self-employed borrowers. 

When you apply for a Bluestone alt-doc loan, we’ll ask you to submit six months business bank statements and/or your last two BAS returns. This is less than a full doc home loan but will still allow us to get a good picture of your financial position and ability to make your repayments.

Many low-doc loans come with high interest rates and additional fees as they’re considered to be higher risk. Make sure you read the fine print before applying – if something looks too good to be true, it probably is!

How to get an alt or low-doc loan

Not every lender offers alt-doc home loans. Usually, major banks tend to be less flexible when it comes to proving your income. If you’re looking for a more flexible loan, you’ll likely be better off with a non-bank lender (like Bluestone!).

Here are a few things you can do to help your home loan application go more smoothly:

  • Check the LVR requirements for your loan before you apply. Generally speaking, you will need at least 20% deposit for a low doc loan.
  • Get your documentation together beforehand. This will help you get your application assessed faster.
  • Do your homework. Find out about any extra fees and add-ons like lender’s mortgage insurance (LMI) or risk fees associated with a low-doc loan. Not all lenders charge the same fees – for example, at Bluestone we don’t charge LMI.

There are a few other factors that can help support your alt or low-doc loan application, like a good savings history and a clean credit report. These help to show that you’re financially responsible and less likely to default on your repayments.

If you’re self-employed and looking for an alt-doc home loan, Bluestone may be able to help. Our loans come with flexible ways to prove your income and we can often help borrowers when the big banks can’t.

Check if a Bluestone alt-doc loan could be right for you here.

 

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