- Australian lenders no longer offer no doc home loans. Low doc home loans may be a suitable alternative for some borrowers.
No doc home loans
No doc home loans – where you get approved for a mortgage without providing evidence of income – are no longer an option for ordinary Australian borrowers..
What are (or were) no doc home loans?
Lenders require proof of your income, saving and spending when you apply for a home loan. These are the "docs" or documents. No doc home loans had higher interest rates and looser lending requirements, meaning borrowers could get these loans even without pay slips, tax returns or bank statements.
Obviously this is a risky lending scenario. Today, lenders don't offer no doc loans to home buyers or property investors. Borrowers who are self-employed or own businesses are better off applying for regular home loans or low doc (sometimes called alt doc) home loans.
What does no doc mean?
No doc means no documentation. This used to be an option for borrowers who couldn't provide evidence of their income (such as with payslips) and who also lacked alternative documentation (such as an accountant's letter or business activity statement).
With no doc loans lenders conducted a credit check and a property valuation, and may have only required the borrowing 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.
Can you still buy a residential home with a no doc loan?
By definition, no doc loans are for situations and borrowers who 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:
- In the name of a company, not a person
- For business or investment purposes
- Secured against a commercial property
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.
No doc vs low doc loans
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 payslips 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.
If you need more help finding a low doc or no doc loan 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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