Borrow money to buy your dream home without having to provide the standard amount of proof of income.
No doc home loans are rare in the Australian home loan market. With almost all home loans you’re usually required to submit some sort of documentation to prove that you earn income. This means that if you’re self-employed or a contractor who receives a fluctuating income, sometimes applying for a home loan, or receiving a competitive rate can be difficult. Lenders will typically require you to provide detailed proof of your income before they will lend you money, but this is easier said than done.
As mentioned, no doc loans are rarer to find than low doc of full doc loans. None of the big four banks offer no doc loans, but will instead offer low doc home loans, which require you to provide a limited form of income evidence, are much more common. A mortgage broker may help you locate a suitable loan which takes into account your income situation.
What is a no doc home loan?
A no doc home loan is a loan offered by a lender that does not require you to provide proof of income in order to be approved for finance. While these types of loans are very rare in Australia, it’s much more common to come across lenders offering low doc home loans. Low doc loans offer a flexible lending solution for those who may struggle to provide acceptable proof of income, such as freelancers, self-employed workers, contractors and investors. Borrowers have to provide less evidence of their income to be approved to borrow money than they would with a regular home loan.
How do no doc home loans work?
As the name suggests, no doc home loans are different to full documentation loans because they don’t require borrowers to supply any financial information about their income when applying. This means self-employed borrowers with little or no evidence of an income can still get a loan. Low doc loans offer those who can’t submit the full range of income evidence a chance at getting a home loan. The information you’ll have to supply to take out a low doc home loan can vary from one lender to the next, but typically it will include a signed declaration of your income, tax returns and Business Activity Statements. This is when an accountant may come in handy.
However, the downside of a no doc or low doc home loan is that without having seen sufficient proof of your income, banks will view you as posing a higher risk of being unable to pay your loan back. As a result, no doc and low doc loans tend to attract higher interest rates and extra fees.
What are the types of no doc home loans?
When looking for a low doc or no doc home loan, you’ll have to decide what sort of interest rate you would like.
- Fixed rate loan. With a fixed rate loan, you can lock in an interest rate for a certain period. This means your rate won’t fluctuate in line with the market interest rate, and it gives you the security of knowing exactly what your repayments will be. A fixed interest rate can save you money if market rates rise above the rate of your loan, but you could also end up paying more if interest rates drop over time.
- Variable rate loan. The interest rate on a variable rate loan will rise and fall in line with the rest of the market. This means your repayment amounts can change over time. Depending on market conditions and whether interest rates rise or fall, the entire amount you end up paying over the life of your loan could vary significantly.
How to compare no doc home loans
You’ll need to compare the following features when looking for a suitable loan:
- Rates and fees. Just like with any other loan, you’ll need to compare the fees and charges associated with competing low doc loans. These loans can attract higher fees than regular home loans, including charges like establishment fees, monthly fees, annual fees, and fees for using the redraw facility. It’s a good idea to look for a loan with lower fees.
- Interest rates. The interest rate on your loan will impact the amount you pay over the life of the loan. The higher the interest rate the more you’ll pay, so look for a loan that offers a competitive rate. You’ll also need to choose between a fixed or variable rate loan.
- Loan-to-value ratio (LVR). There are increased restrictions on low doc home loans when compared to regular home loans, and one of those restrictions is on the maximum LVR. No doc and low doc loans generally only let you borrow a smaller amount of the property’s value, so take this factor into account when comparing loans.
- Repayment flexibility. Does your loan let you choose if you want to make repayments weekly, fortnightly or monthly? Can you make extra repayments when it suits you and can you pay off your loan early without incurring a penalty? Look for a loan that you can tailor to suit your budget and lifestyle.
Pros and cons of no doc home loans
- Accessible loans. The main advantage of no doc and low doc loans is that they allow self-employed borrowers and others who can’t provide adequate proof of income to access finance.
- Fast application. Without the need to put together extensive documentation to prove your income, applying for one of these types of loans can be relatively hassle-free.
- Conversion. Many lenders make it possible to convert your low doc loan to a regular loan in the future without having to provide financial evidence. Of course, you’ll have to establish a good track record of making repayments on time before this will happen.
- No doc loans are rare. No doc loans are rare in Australia, so it pays to be wary of lenders offering deals that sound too good to be true. You may want to check with a mortgage broker to ensure you are choosing the right lender.
- Higher interest rates and fees. These loans attract higher interest rates and fees than regular loans to cover the higher risk, meaning you will end up paying more over the life of your loan.
- Lower LVR. Many lenders will limit the amount you’re allowed to borrow in proportion to the value of the property you are buying, generally to 60% of the property value. Many of these loans will also not allow you to take out Lender’s Mortgage Insurance (LMI).
Things to avoid with no doc home loans
No doc home loans are rare in Australia, and none of the big banks or well-known financial institutions offer them. With this in mind, you need to be very wary of falling prey to a dodgy lender. Rather than a no doc loan, you might want to consider applying for a low doc loan as these are offered by a wide range of lenders.
In addition, low doc home loans attract higher interest rates and fees than regular loans. Try to find a loan that offers a low rate and low fees to help you save money.
Frequently asked questions about no doc home loans
Why doesn’t my bank offer no doc home loans?
Very few Australian lenders offer this type of loan, so be wary of lenders offering no doc loans. You might want to go for a low doc home loan instead.
What proof of income do I need?
No doc home loans will require no proof of income. For low doc loans, this can vary from one lender to the next but could include tax returns, Business Activity Statements or a Borrower Certificate of Income Declaration Form.
Who is suited to a no doc or low doc loan?
These types of loans are perfect for those who are unable to provide traditional proof of income, such as the self-employed, contractors and investors.
If you’re self-employed or an investor and struggle to provide proof of income when applying for a home loan, you could consider a no doc or low doc home loan. Low doc home loans are the more common of the two options in Australia, and they allow people to borrow money after providing only limited financial information. However, these loans do attract higher interest rates and fees than regular loans, so it pays to compare your options and shop around for the best possible deal.