What are Low Doc Loans?
Low Doc loans are traditionally loans that are done on a reduced documentation basis. For example, the general requirement for a self employed customers is to produce 2 years tax returns for your company and yourself. The bank will then extract the profit, income paid to yourself and other appropriate items to calculate a figure that can be used as income to see if you can afford the loan.
However, in some cases this is either inappropriate or not available. For example, if you hadn’t done your tax returns for a year or two then the tax returns you have available aren’t accurate enough for the bank to use to verify your income, In these cases you would provide alternate documents such as BAS or an accountants letter to help the income verification process.
In a recent article published on our site, we wrote that the “old way” of the low doc loan was dead and buried and that is still true. Most banks who won’t charge you an arm and a leg to lend you money will want more than just your word when it comes to verifying income. Most banks will want either your accountant to confirm your declaration or BAS statements to support your income declaration or both.
What is an Income Declaration?
An income declaration is a formatted document that where you declare how much money you earn. Each bank has their own template, but essentially you are signing a declaration stating that you earn $xxx,xxx per year and that this is enough income to repay the loan you are applying for.
Since the introduction of NCCP after the GFC, lenders are no longer permitted to accept just this declaration. To support your “self-assessment” of your income, you will need to supply your BAS statements or even have your accountant acknowledge your declaration. Once again, depending on the lender this will vary.
Are interest rates higher with Low Doc loans?
Typically yes and the reasoning is very simple. If the bank can’t see your tax returns to verify your income then you are classed as a higher risk to the bank.
In addition to a higher interest rate there are typically fees like mortgage insurance, or, risk fees associated with the loan.
Low Doc loans are not considered the normal in the current lending environment and most lenders have made the criteria very tough or removed the option all together.
Are there any other options available if I don’t have tax returns?
Yes, there are always options. There are lenders who will lend money to you if you have BAS and an MYOB profit and loss prepared. There are also bank who will consider using older tax returns if you can supply BAS statements for the gap in between.
If you feel you are out of options, the best thing you can do is contact our staff immediately so we can provide guidance to you.