Lo Doc Loans

One of the major hurdles facing every self-employed borrower is the need to provide the bank with detailed information concerning income.

In fact, the bank has stringent guidelines when it comes to this criteria and the minimum required for any application is for two complete financial year's tax returns, plus full financials for both the company and the directors where necessary.

If the loan is to be taken out in a company or trust name, tax returns have to be provided for the company and the trust as well as for the guarantor. The guarantor is usually the company directors.

Where the company has more than one director, but only one director is applying for the loan, banks are still in the habit of seeking information about all directors. This can become difficult for some applicants especially where other directors do not want to be involved or where they are concerned about issues of privacy.

In most situations the bank will waive the need for other directors but in some circumstances where they consider the deal to be a greater risk, they may not result from their position which makes the applicants position untenable, or possibly impossible forcing the withdrawal of application.

Is there a way through this maze?

The short answer is yes, you can apply for a Lo Doc Loan.

What is a Lo Doc loan?

A Lo Doc loan is a facility offered by some lenders that does not require borrowers to provide details of their income. This lifts a great burden from the shoulders of self-employed borrowers because it is often difficult to provide two financial years tax returns for both companies and personal applicants especially when you consider that the banks also require full financial statements from accountants concerning their business.

There are limitations however on how the loan can be structured and there may also be financial penalties to pay.

Here are some of the characteristics of a Lo Doc loan.

No need to provide any financial information by way of tax returns or financials.

Borrower is required to sign a statement stating they understand the conditions of the loan and that they will have no difficulty making the repayments, or suffer financial hardship by accepting the credit contract.

Loans are available for personal, investment or business purposes.

Construction loans are generally not acceptable.

Maximum loan to value ratio limited to 85% maximum (in some cases) whilst other lenders will go to a maximum of either 60% or 80%.

ABN must have been registered for at least six months. GST registration is also required for the same period. Directors who are signatories to the loans must also have occupied the office of director for at least six months.

Three months business account bank statements must be supplied with the application to verify cash flow.

One month personal bank statement which has been issued within 90 days must also accompany the loan documentation.

Maximum loan amount is limited to $1 million.

The features that apply to standard home loans will usually also apply to a Lo Doc loan.

A lenders risk fee may apply to some Lo Doc loans. The amount payable will vary from lender to lender but could be as much as 1.5% of the loan amount. The fee generally increases in line with the loan to value ratio. In other words, the more you borrow the greater the fee will be.

Settlement fees may also apply depending on the lender. The amount will vary from around $600 to a maximum of around $1000.

Valuation fees and application fees will also apply and will vary from lender to lender but you can expect to pay around $1000 in total.

Lenders Mortgage Insurance does not apply.

As you can see from the above points, a Lo Doc loan is an easy path for a legitimate self-employed borrower albeit with some higher-priced fees than normal. These fees represent the extra risks taken by the lender and in reality become a small consideration in view of the ease with which a loan can be approved.

In order to get the best deal when it comes to Lo Doc loans it's important to get as much information as possible and the best way to do this is via a mortgage broker. A good mortgage broker will have access to most products on the market and can give you all the information you need.

Each lender varies quite significantly when it comes to required documentation and many self-employed people choose to take the path of least resistance and are prepared to pay a slightly higher fee in return for not having to provide details of their income. This especially applies to some lenders who require business bank statements to be provided to confirm cash flow whilst other lenders do not have this condition.

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