Low Doc loans - what's changed and what's new..

Firstly, low doc loans are product which allows you to declare your income with little or no evidence/proof to support this. You guarantee that you can afford the repayments, but you must be self employed and evidence that your business has been trading for a minimum time.

Lending today is very different to a year ago, and even more so than 2 years ago, especially if you were always a “low doc” customer.

The important points to note are;

• Yes they are still available
• Maximum Loan to value ratio (LVR) is back to 80%, this used to be 95%, some lenders offer 85% however, the fees involved can be nearly 5% so why bother..
• No Docs are very limited and very expensive – only available from private funders
• Some lenders now request 12 months BAS statements and business banking statements –this allows the lender to see that enough cashflow is coming into the business…
• The rate may be slightly higher than a full documentation loan, and the higher the loan to value ratio (LVR) the more you pay..

Call us as the banks have all but pulled out of the market, and/or are looking to make you walk over hot coals to get the finance approved. It’s important to know what is suitable for your financial needs, i.e. how long do you plan on keeping the loan – so does the exit cost matter to you? So now more than ever it is crucial to find out through us who the best and most suitable lender is for your circumstances.

The most important point to note is that just because you have always been a “low doc” customer, doesn’t mean that’s for life. Some lenders will allow you to convert to a full documentation loan once you supply tax returns and financial records, however, most non-bank customers do not have this facility.

If you are self employed and your business is turning over a good income, paying yourself minimum wage to avoid tax could cost you thousands in interest and fees when you decide to borrow or inhibit you from borrowing at all, so it’s just as important to have a good relationship with your accountant by discussing your future plans personally and in business.

First look at all options available before going down the low doc path, it could save you thousands in the end…

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