When you apply for a home loan, lenders require documents which prove things like your income, savings and spending. They do this so they can check things like you are who you say you are and that you can repay the loan as well as you say you can.
No doc home loans were loans which did not require any documentation. Sounds risky? It was. Borrowers didn't have to submit pay slips, tax returns or bank statements. In return these loans had higher interest rates.
No doc loans were stopped, but there are still borrowers who are unable to provide proof of regular income - even when they're perfectly capable of repaying the loan. That goes for many self-employed borrowers or business owners.
These borrowers can get low doc (or alt doc loans) instead. This is where borrowers can apply for a home loan with different documentation, like business activity statements or accountant letters.
| Response | 45-54 yrs | 35-44 yrs | 25-34 yrs | 18-24 yrs |
|---|---|---|---|---|
| No | 1.45% | 1.18% | 1.46% | |
| Yes | 0.48% | 3.54% | 3.4% | 5.71% |
With no doc loans, lenders conducted a credit check and a property valuation, and may have only required the borrower to sign a statement declaring they are able to repay the loan.
No doc loans weren't designed to be held for 30 years like other mortgages. These loans had higher rates. Lenders often required the borrower to create an exit plan showing how they intended to repay the loan.
The borrower was expected to refinance to a normal home loan after building up a more traditional proof of income.
Any no doc loans now offered are usually for commercial or business borrowers. The lending scenarios fall outside the regulations of the National Consumer Credit Protection (NCCP) Act 2009.
To qualify for a no doc loan that falls outside the NCCP regulations, the loan must be:
If you don't meet the criteria above then your loan will fall under the NCCP regulations and you will need a low doc loan or a regular home loan.
"Frankly, borrowers have shown an inability to take responsibility for their requests – I reference the Royal Commission and current onerous lending regulations on consumer lending, whereby the responsibility lands on the lender to ensure a loan is suitable for the applicant and they can satisfactorily show their capacity to repay a debt. For company borrowers, no doc lending is available, but you would want to have a pretty good explanation [as to] why you couldn't show some form of income, such as bank statements, BAS statements or an accountant letter. Low and Alt doc loans are pretty easy to qualify for, with the right people in your corner, so there are some great alternatives to no doc lending."
While similar, there are a few differences between low and no documentation loans. Both loan types are options for borrowers who don't have the common proof of income, such as regular pay slips from PAYG income.
Low doc loans allow borrowers to establish proof of income via alternative documents. This includes business activity statements, a signed letter from an accountant and a signed declaration of your income. You may need an ABN as well.
Low doc loans generally have higher interest rates than regular home loans, and usually require larger home loan deposits. You can use a low doc loan to buy a residential property.
Low doc loans aren't necessarily difficult to apply for, but it does limit where you can get your home loan. Specialist lenders are more likely to approve you for a home loan with low documentation. You'll also find that the interest rates are higher. Typically, these lenders encourage shorter loan terms so that you can use this time to build up equity and evidence of being a good borrower, so you can move on to a standard home loan.
If you need more help finding a low doc then it could be a good idea to talk to a mortgage broker. They can offer you free, expert advice or point you in the direction of a specialist lender who can help your unique situation.
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Can a no doc loan moves to normal loans?
Hi Violets,
Thank you for your question and for contacting Finder.
Basically, the difference between a no doc home loan and a regular home loan is that the no doc home loans are available to borrowers who struggle to provide any proof of financial information about their income when applying. Though there are lenders who offer no doc home loans, they are only a few in Australia.
So in case you have been accepted for a no doc home loan, there might be difficulties in moving to a full documentation regular home loan as most likely you will be asked to submit your financial information like proof of income, assets, other liabilities, etc. Nonetheless, please note that your approval for a regular home loan would vary from lender to lender, so it’s best to get in touch with the lender first to discuss your chances of approval before you submit your application. Alternatively, you can also speak with a mortgage broker who will take your circumstances into account and can offer you a range of lending options.
Cheers,
May
I have a bad credit rating due to an unpaid, disputed mastdeposit, mastercard bill. if I have 40,000 deposit saved, how much could I borrow on a low doc loan, and what would the repayments be over 15 years ?? thank you
Hi Greg,
Thanks for your question.
There are lenders who will consider you for a home loan when you have a bad credit rating. Many lenders offer low doc home loans that require you to provide a limited form of income evidence.
If you need more help finding a low doc or a no-doc home loan, I recommend getting in touch with a licensed mortgage broker that can help you understand your financial position and can leverage their panel of networks to find a lender that’s more inclined to review your application.
Cheers,
Shirley
I would like to know if there is a reputable lender who will approve a loan to purchase a home with no documentation of proof of income. However, I have recently sold a home and have money in the bank. Thanks for your anticipated assistance.
Hi Vivian,
Thanks for your question.
All reputable lenders require some kind of documentation to assess your borrowing position.
If you have trouble finding a home loan, you may want to speak to a mortgage broker. A broker can help you understand your financial position and they can leverage their panel of networks to find a lender that is more inclined to review your application.
Cheers,
Shirley