No Doc Loans – Differences Between Them and Low Doc Loans
Some people have no problem offering proof of their income; on the other hand, for others, asking for documentation would be like dropping a large hammer on their head. If you have fluctuating income or are self-employed, for instance, it’s not really easy for you to offer proof of your income. Immigrants and seasonal workers have the same problem; so how can you get a loan under these circumstances?
Thankfully, there are some loans for Aussies that require little to no proof and are usually based on large down payments (for instance, a bigger deposit through your personal savings or your equity). These loans are called simply “low-doc loans.”
Info on Low-Doc Loans
If a borrower is self-employed and cannot offer any proof of their tax returns, they might want to consider low-doc loans as an option. Since they are “low doc,” you will still need to bring some sort of proof that you actually have an income. Usually, you will be required to bring a BAS statement, bank statements, and some sort of legal declaration.
These loans are risky for the lender, so in order to become an attractive borrower, you might want to work on the following four characteristics:
- Good credit: The better your credit, the more your lender will be able to ignore the fact that your income proof is practically non-existent. If they saw that you don’t have proof of income nor good credit, how could they trust that you would actually return the money? If everything is in good shape and your credit looks spotless, they’ll be like “This guy’s ok, he pays his taxes.”
- Income: You may not be able to offer clear pay slips, but you’ll still have to make your case about your income. The higher your income, the less paranoid they’ll be of you ditching on your payments.
- Assets: If you don’t have much proof of your assets, you might want to bring some collateral to the table. It can be anything, from a house to a car or an investment in a bank account that can act as a “reserve” in case you can’t make your payments. If you are confident you can make the payments, however, you shouldn’t worry about those assets.
- Equity: The logic is the same as with the assets above. Large down payments (equity) will make the lenders know that you actually have what it takes to go all the way.
The more you can bring to the table aside from income proof, the more chances you have of getting some low doc loans. These loans are usually taken out to purchase a residential property for people that do not have a fixed income.
No Doc Loans Features
No doc loans are practically very similar to low doc loans, in the sense that you won’t need much proof of your income. All you will need is a declaration that you can actually afford to pay.
The issue with no doc loans, however, is that they are a bit a higher risk level than low doc loans – since they bring no proof whatsoever. All they have to work on is a “trust me.” For that reason, no doc loans are set with much higher interest rates than the other loans.
While low doc loans are for investing in a house, no doc loans are usually taken out to invest in a business. These loans can spread over a different time limit, but usually, it can last between six and twelve months.
The Current Situation
Since more and more people are becoming self-employed in Australia, you may find no doc or low doc loans at pretty much every corner. They were created specifically for helping people who have been turned down by banks for not coming over with a payslip.
These loans have been highly abused lately, especially the no doc loans. There were also plenty of controversies since the banks were accused of giving off money to people who could not afford to give it back – especially considering the very high interest rates.
Even so, more and more people are taking out no doc loans in order to secure a financial “nest egg.”
There is not much of a difference between no doc and low doc loans – other than the obvious difference in the names. While for low doc loans you’re required to bring in some bank statements, a no doc will only need a declaration. And while low-loc are preferred for homes, no-doc are preferred for businesses.
If you want to get some no doc or low doc loans, enquire with us to find out the most suitable option we have for you. We have great options for Aussies who have paperwork issues, and we can offer you free advice on how to receive a more “flexible” loan.