Can low-doc loans work for first-time home buyers?
First-time home buyers can benefit from low-doc loans just like any other borrower. However, as with any other loan type, first-time buyers need to provide certain documentation that proves their reliability to the lender.
How does a low-doc loan work?
Low-doc loans provide a solution for those unable to prove their financial status through traditional methods - such as payslips. In particular, these types of loans tend to benefit those who are self-employed, haven't lived in Australia for a long time or have otherwise unusual circumstances.
Also referred to as alt-doc loans, lenders often still require a reasonable amount of documentation in order to approve the application. However, the types of documentation they are accept are much more flexible.
Most lenders do have certain stipulations around who they'll lend to in these circumstances. For example:
- You must have been self-employed for at least 12 months prior to application.
- Your business must have had an ABN (Australian Business Number) for a particular length of time.
- You must be over 18 years of age.
- Your credit score must pass their approval criteria.
- Your deposit should be worth a specific percentage of the properties worth, often 20 per cent.
- The LTV (loan-to-value ratio) may be a maximum of 80 per cent.
- You may be subject to a higher interest rate to protect the lender's investment.
- For first-time buyers specifically, you may need to prove you've saved your deposit over time or that it is equity from another property, to show the lender that you can manage your money responsibly.
How can I obtain a low-doc loan?
Applying for a low-doc loan is much the same as any other financial product. You'll be required to provide a selection of paperwork that proves your financial situation, and exactly what you need to present varies according to the lender you're working with. For this reason, it's imperative your financial records are up-to-date, easily accessible and clearly presented.
Documents you should prepare ahead of time include:
- A letter from your accountant verifying your income and status.
- Any personal and business tax returns you have, possibly including those that are several years old.
- Business bank statements that shows the turnover of your company, if you're self-employed.
- BAS (business activity) statements proving your business's worth and verified by the Australian Tax Office (ATO).
Before making an application, you'll also need to ascertain which lenders offer low-doc loans and if you fit their approval criteria. Not all lenders offer specialist solutions, and applying to lots of organisations may build up unnecessary credit history checks and harm your suitability.
Low-doc loans are often available as pre-approvals, meaning you can start your first-home property search knowing you have the funding secured.
Working with a specialist lending broker
Brokers with specialist lending expertise focus on borrowers who are considered 'non conforming'. These borrowers may not fit prime loans criteria for a number of reasons, such as being self-employed or because of a poor credit history.
Working with a specialist lending broker can speed up your low-doc loan application as they can help you identify the right lenders for your situation. They talk to specialist lenders every day, and are familiar with each organisation's unique requirements. Your specialist can guide you through the application process, knowing what documentation you'll need to provide, and when you should submit it.
To talk to a specialist lending expert, get in touch with Red Rock Brokers group today. We have a nationwide network of experienced brokers who can help you find the mortgage loan you need to make your first-home dreams a reality.