Low Doc Loan: What Are Low Doc or Alt Doc Home Loans?

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What Are Low Doc or Alt Doc Home Loans?

Low Doc or Alt Doc home loans are designed specifically for individuals who cannot provide the usual financial documentation often required by traditional mortgage providers.

These loans are specifically designed to meet the requirements of small business owners and self-employed individuals, who do not have traditional income sources or the necessary documentation like company, business, or personal tax returns, or profit and loss statements.

They offer the opportunity for these individuals to potentially secure a home loan by providing alternative evidence of their financial stability, mitigating the barriers faced in the mainstream lending process.

Understanding the nuances of Low Doc and Alt Doc home loans is essential for self-employed borrowers to enable them to make informed decisions.

While these loan options can provide a viable route to home ownership for those with non-traditional income documentation sources, they also typically come with higher interest rates and fees compared to standard home loans.

This is due to the perceived higher risk associated with borrowers who lack traditional proof of income documentation. Navigating this lending landscape is best done with the guidance of a professional mortgage broker, however having some knowledge of the advantages and drawbacks of these loan products can help you to make the right decision for your individual financial situation.

Key Takeaways

    • Low Doc and Alt Doc home loans cater to self-employed borrowers, contractors, and freelancers who cannot provide traditional income documentation.
    • These loan options can enable non-traditional borrowers to secure a home loan, but often have higher interest rates and fees compared to standard home loans.
    • Understanding the pros and cons of Low Doc and Alt Doc home loans is crucial for making an informed decision based on one’s individual financial situation.

Understanding Low Doc and Alt Doc Home Loans

Definition and Purpose

Low Doc and Alt Doc home loans are types of mortgage loans designed primarily for self-employed individuals and small business owners, who may struggle to provide the standard documentation required by traditional lenders. These loans cater to the financial needs of borrowers with unconventional income sources or those who cannot supply the extensive paperwork demanded by regular home loans.

Common Eligibility Criteria

To be eligible for a Low Doc or Alt Doc home loan, you must typically:

  • Be self-employed or a small business owner
  • Have an Australian Business Number (ABN) that’s at least 6 months old
  • Demonstrate a stable income, even if it varies month-to-month
  • Have a satisfactory credit history

Be mindful that lending criteria varies among lenders, making it crucial to consult a mortgage broker who can offer guidance and support in evaluating your options thoughtfully.

Key Features of Alt and Low Doc Loans

Documentation: Low Doc and Alt Doc loans generally require less documentation compared to standard home loans. The most common forms of income verification include Business Activity Statements (BAS), business bank account statements, or an accountant’s declaration.

Interest Rates: Due to the higher perceived risk associated with these loans, lenders may charge a slightly higher interest rate compared to regular home loans. However, if you maintain a good repayment history and demonstrate financial stability, you might be granted a rate reduction in the future.

Loan-to-Value Ratio (LVR): The LVR represents the amount borrowed compared to the property’s value. Low Doc and Alt Doc loans may have a lower maximum LVR than traditional home loans, meaning you may need to provide a larger deposit or use equity in another property.

Don’t forget, consulting with a mortgage broker and comparing loan options can aid in finding the right low doc or alt doc home loan for your specific circumstances.

Low Doc or Alt Doc loans have the potential to assist…

Self-Employed People without full documentation required by mainstream lenders

If you’re a self-employed individual or business owner in Australia, you might face challenges when applying for a home loan or investment loan through traditional banks and lenders. These mainstream institutions typically require extensive documentation to verify your income, such as full financials for your business and tax returns.

However, as a self-employed person, you may not have all these documents readily available, or your income may fluctuate, making it difficult to satisfy the requirements of mainstream lenders.

This is where low-doc loans or alt-doc loans may be able to help. These home loans are, as mentioned above, specifically designed for self-employed borrowers who can’t provide the full documentation required by mainstream lenders.

Typically, in order to proceed, you will need to be capable of providing alternative documentation, which might include:

    • Business bank statements from the last 6-12 months
    • BAS statements for the last 6-12 months
    • Personal bank statements
    • ABN and GST registration
    • Accountant’s letter confirming your income
    • Various other documents

The approval process for these loans usually takes into account factors such as your income verification, credit history, and credit score, ensuring that you’re still assessed as a responsible borrower based on your history and financial position.

Pros and Cons of Low and Alt Doc Home Loans

Benefits for Self-Employed Borrowers:

Low Doc and Alt Doc home loans are designed for those who have difficulty providing traditional home or investment loan documentation, such as self-employed borrowers and small business owners. Here are some advantages:

    • Flexibility: These loans often offer more flexibility in terms of loan features and repayment options, making it easier for you to manage your finances.
    • Streamlined process: With less documentation required, the application process is often quicker and simpler than the traditional Full Doc loans.
    • Tailored solutions: As lenders understand that your income and expenses may vary, they may be more willing to customise the loan structure to better suit your financial needs.

Potential Downfalls:

While there are clear benefits for self-employed borrowers, it’s important to be aware of the potential cons associated with Low Doc and Alt Doc home loans:

    • Higher interest rates: You may be charged a higher interest rate compared to Full Doc loans, due to the reduced documentation which may be perceived by the lender as higher risk.
    • Higher fees: In some cases, lenders may charge higher fees, risk fees, or require a larger deposit for Low Doc and Alt Doc home loans to offset the increased risk.
    • Loan restrictions: Depending on the lender, there may be restrictions on the type and size of the loan you can get, which could limit your options when buying a property.

When considering a Low Doc or Alt Doc home loan, it is crucial to weigh the pros and cons to determine if it’s the right solution for your unique financial situation. Get in touch today for professional advice and we will be able to compare different lenders and loan products to find the best fit for your situation.

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Unlike other banks and brokers that most commonly cater for wage earners (not business owners), and are restricted to selling their own or brand-approved lending products (whether they are right for you or not), we specialise in working with business owners and have access to hundreds of loan options from dozens of lenders to ensure you get the right loan for your situation.

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Testimonials

Other Self-Employed Business Owners and Individuals We’ve Helped

If you’ve ever tried to get a loan from your bank, you’ll know how hard (and often disappointing) it can be. But it doesn’t have to be that way. Take a look at what some of our clients say about how we helped them get finance for their home, investments, and business:

The team at Pro Options has more than 48 years of combined experience helping self-employed business owners and other indiviuals  get fast approval for better finance. Here’s what some of them say about their results and experience with our team:

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We have been using pro options for about 8 years now and they have been able to help us in situations that others considered too difficult. Highly recommended

Jaden Bennett November 3, 2023
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A Huge Thank You To Alex From Our Mortgage Options!!

A huge thank-you to Alex from Our Mortgage Options!! I came across Alex about 18 months ago when my partner and I were trying to get into the housing market as first home buyers. Thank god we found Alex and had him on board to help us with our journey. He guided us all the way from getting our pre approval to buy our land and house making everything so easy and stress free. He found us a great loan and bank, explaining everything we needed to know in plain english. He managed everything related to our bank including progress payments and inspections with his communications always prompt causing no delays. Thank-you Alex for helping us to get our first home:)

Melissa
Melissa October 2, 2023
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I have been working with Alex for 12 years and he has been wonderful to deal with, his knowledge and client focus have saved me thousands of dollars. Highly recommended!

Carl Brooks September 4, 2023
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Alex and his team are top notch brokers and always goes beyond the call of duty to help clients, I would recommend his service to anyone needing finance.

Laurence Hugo May 17, 2023
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My Investment Refinance Journey Paid Huge Dividends!!

“As an experienced investor who has required finance for property purchases whether they be for land, units, houses or for construction both in NSW or interstate, I’m always after a better deal. Ultimately the better the deal, the more dollars I can drive back into further investments to achieve my financial freedom dreams and fund my lifestyle that includes a comfortable family home, private school fees for my children, numerous overseas trips, and stepping ever closer to leaving the rat race behind. Recently in this strange Covid-19 world, Alex at Our Mortgage Options managed to refinance my exisiting mortgages and secure me additional construction loan finance that has now paid off handsomely. I’m basically at minimum now $500 a month (or $6000 a year) better off with reduced interest rate payments meaning that the next project after this new property is built, is not that far away. The refinance journey due to financial institution compliance can sometimes be excruciatingly long and frustrating but with Alex in your corner, well worth it!!”

Martin - Western Sydney
Martin - Western Sydney July 1, 2022
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Alex was extremely helpful throughout our 1st home purchase. He made the process smooth and hassle free. He is well versed in his field and we would recommend his professionalism to anyone who is needing the guidance that he offered in serving us.

Triatan ross August 28, 2017
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Great mortgage brokers. These guys will give you great advice in terms of the best home loan product. Speak to these guys before going to your bank. You won't regret it.

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