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No doc home loans

Do you have no access to documentation proving your income? A no doc home loan could be the solution for you.

No doc home loans

A no doc home loan is available for those who are not able to provide any documentation that proves their income such as:

  • Payslips
  • Tax returns
  • BAS statements
  • Business financials

What is a no doc home loan?

No documentation home loans are mostly offered as an option for self-employed borrowers who are unable to present any proof of income. Applicants may also be classified as freelancers, contractors, new business owners and investors.

Each lender has their own set of conditions and regulations surrounding no doc home loans. Generally, these loans will take much longer and be far more difficult to receive than a regular home loan because of their high-risk nature.

How do no doc home loans work?

On principal, no doc home loans work similarly to regular home loans. However, there are some fundamental differences, these come in:

Documentation required by lenders
No doc home loan
Regular home loan
Does not require any. However, you will need to sign some documents proving your ability to make repayments on your home loan. These could include a statement containing your assets and liabilities and a declaration confirming you can afford to repay your loan.
Will require you to provide lenders with documentation including your recent payslips and tax returns.
Interest rates
No doc home loan
Regular home loan

Only offer standard variable rates which are usually considerably higher than in regular home loans.

Offer both standard variable interest rates and fixed interest rates.

Deposit and LVR levels
No doc home loan
Regular home loan
Requires at least 20% of a property’s value (80% LVR) as a deposit, with those products having much higher interest rates.
only requires a deposit of 10% to 15% of a property’s value (90% to 85% LVR) with some only requiring 5% (95% LVR).
Loan term
No doc home loan
Regular home loan
Can last as long as a regular home loan, but they were devised to be shorter. They will often begin with a lower rate before moving to a higher rate after a period of around two years.
Will span decades, with some even lasting 30 years.

Am I eligible for a no doc home loan?

To be eligible to receive this loan, you must meet one of the criteria set by the National Consumer Credit Protection Act of 2009 (NCCP Act):

  • Must be for business purposes
  • Must be secured by a commercial property
    • The commercial property must be in a good location.
    • The commercial property must be in good condition.
    • The commercial property is larger than 50m2 as a unit or 2ha as land.
    • The commercial property must be readily sellable.
  • Must be for investment purposes
  • Must be in the name of a company or trust with an ABN.

 

How to apply for a no doc home loan?

The process of applying and receiving a no documentation home loan is not all that different to the regular home loan process. Here are the steps required:

Pre-approval

First of all, you will need to receive pre-approval. This would be where you would present all of your documentation with a regular home loan, this is not needed in this case. However, you will need to submit the documents mentioned in the table above. Your credit history will also be assessed when applying for a pre-approval.

During the pre-approval process you will search the lender and home loan market. Many Australians look first to the big four banks (NAB, Commonwealth Bank, Westpac and ANZ) to find a home loan product, with the Big Four controlling over half of the home loan market share according to the Australian Finance Group. However, the Big Four do not offer no documentation home loans.

Luckily, many smaller Australian lenders do offer these loans. And although interest rates and deposit levels may be high, there are some very competitive deals to be found around the market.

A granted pre-approval or conditional approval means that the lender has agreed conditionally to lend you money towards the purchase of a home.

Pre-approval can last anywhere between three and six months.

Finding a home

Next you will need to find your home. This is the most important step of the process for anyone getting a home loan. Don’t rush this step, but keep in mind that your pre-approval will only last between three and six months. If it expires, you can always re-apply.

Property valuation

After you have found your home, a property valuation will need to be performed. This step of the process will run no different between a no doc and regular home loan process.

A valuation will let the lender decide whether the property meets their lending criteria. It can take anywhere between one and seven days depending on the strategy of valuation used.

Formal approval

You will then be subject to a formal approval from your lender. Since you have already received pre-approval this process should be rather uniform.

A formal approval will usually take a handful of business days to complete.

Contract of sale and settlement

Next you will be presented with the contract of sale. This process is the same as with a regular home loan, as is the importance of understanding the entire contents of each document.

Many people enlist the assistance of legal representation to help them with this part of the process and considering the stakes, it is a good idea.

Once these contracts have been signed you will negotiate a date of settlement with your vendor, and before you know it, you will be the owner of your new home.

The pros and cons of a no doc home loan

No doc home loans offer a solution to a problem, but there are some issues associated with them.

PROS

Allows people without access to documentation proving their income to receive a home loan.

You have access to services and features that can help reduce your interest rate payments and overall payments. These could include but are not limited to:

    • Redraw facility: A facility that allows you to re-access any additional payments you have made towards your home loan.
    • Offset account: Another bank account where the balance works against the remainder of your home loan.

Although you may pay a slightly higher rate with a no doc loan with Australian property values historically going up and more recently accelerating its likely more beneficial to get in the market rat than out. Now. Every year could be costing you money.

A no doc loan allows some self- employed property investors to continue to buy, sell, earn, invest and profit.

Owning a home puts you in a strong position financially for a long period of time. The long-term financial benefits outweigh the average extra financing costs usually.

CONS

Higher interest rates than regular home loans.

Higher deposit needed than regular home loans.

Your no doc home loan questions answered

No doc home loans can be confusing, see the answers to the most frequently asked questions here.

What’s the difference between no doc and low doc home loans?

As the names suggest, the main difference between no doc and low doc home loans is the amount of documentation needed. Apart from this difference, some other are:

  • Low doc home loans are usually more accessible and there is a wider market of lenders that offer them in comparison to those that offer no doc home loans.
  • Low doc home loans will usually also have lower interest rates and fees.
If I have a bad credit history can I still get a No Doc Home Loan?

There are specialised home loan lenders in Australia, who may consider a home loan application with bad credit history. However, they require a higher deposit and interest rate as you pose a higher risk as a borrower.

Could a Guarantor help me secure a No Doc Home Loan?

Yes, a guarantor could help, especially if you do not have a good credit history. Guarantors are also a very good option for those finding it difficult to front up the amount required for a higher deposit.

However, it is important that your guarantor is in a strong financial position and will be able to make your loan repayments in the event that you cannot.

What if my situation changes during my loan?

If your work situation changes during your loan and you become a permanent employee working a full-time job, you could look to refinance your loan. This may mean a lowered interest rate, longer loan term and lower monthly repayments.

However, you should wait at least a year in your new job before applying to refinance your loan.

What interest rates can I expect?

The interest rate on a no doc home loan is typically higher than a regular home loan because applicants present a higher risk than an average salaried employee who can provide a range of documentation proving their income and ability to repay the loan.

Also, no documentation home loans typically have a shorter life than a regular home loan.

Can I use a no doc home loan for an investment property?

You should be able to use this loan for an investment property with most lenders. However, you should certainly check with your lender to ensure that this is possible and if there are any further fees related to doing so