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Low and alt doc home loans
A 'low low' doc or 'alt doc' home loan offer you a mortgage option if you're self-employed.
If you’re finding it hard to get a mortgage because you’re self-employed, then a low documentation or alternative documentation loan could help you get on the housing ladder. Keep reading to find more about how these home loans work and what you need to apply.
What’s a low doc home loan?
Low or alt documentation loans are mortgage products for self-employed borrowers, such as small business owners, freelancers, contractors and other people who don’t have regular jobs. Low doc loans use a type of self-verification system where you can state what you make with a declaration document.
Low doc home loans vs traditional home loans
Some of the main differences between low home loans and more traditional types of home loans are:
- A lower maximum LVR, meaning you can usually only borrow up to 70-80%
- Sometimes a slightly higher interest rate, to compensate lenders for the increased risk low doc lending presents
- A low doc home loan applicant doesn’t have to produce company financial reports or tax returns in the same manner as do other home loan applicants.
- Lenders will accept an income declaration that confirms the applicant can afford the loan and has the ability to repay.
Am I eligible for a low or alt doc loan?
Every lender’s policies surrounding low doc and alt doc loans, including their lending criteria, is different. This makes it important to read the eligibility criteria for a loan before you apply, and think about seeking the services of a mortgage broker who is comfortable and experienced with low doc loans.
Generally, low and alt doc home loans might suit the following borrowers:
Self-employed New Zealanders
If you are self-employed you know how much you earn over the course of the year and you know how much spare cash you have in your budget each month to dedicate to your home loan repayment. However, if you have only been in business for a few years or your income appears inconsistent because you run your business to be tax effective instead of to turn over high profits on paper, then you can benefit from self-certifying that you are able to service a loan.
As an investor you may not have a regular income or employment history if you rely on your investment income. However, if you are in the market for a new investment property then you can use a low doc loan to help make your next investment a reality. If you are an investor looking at applying for a low doc loan also keep in mind that the rent you receive from your investment properties is not included on your BAS turnover so you will need to make sure the income you are assessed by is high enough.
In a similar situation to self-employed New Zealanders, contract workers may work for a portion of each year and then spread their income out over the year. Because of this more irregular income source, if you’re a contract worker you may have to seek a low or alt doc home loan.
What documents will I need for a low or alt doc home loan?
While you don’t have to show as much evidence, you still need to complete the loan application process to be approved as a low doc borrower, and in many cases this will still require some documents. A low or alt doc home loan application will require one or more of the following.
Registered business name and NZBN
Because a low or alt doc loan takes into account income made by you through your business, your lender will want information about your business, including your registered business name and New Zealand Business Number (NZBN).
Self-verified income declaration
Where you don’t need to provide payslips or tax returns with a low or alt doc doc loan, you will need to sign a statement verifying that you earn the amount you say that you earn, and that you can afford the loan.
A letter from your accountant
Similar to the signed income declaration mentioned above, your lender might also require an income form signed by your accountant.
Previous bank statements
Depending on what lender you opt for, they may want to see statements from your primary business bank account. These are usually requested for as far back as six months.
Can I refinance a low doc or alt doc home loan?
Yes, these loan types can be refinanced. However, qualifying for one several years ago doesn’t mean that you will automatically be able to refinance now. You may be subject to stricter eligibility and documentation requirements.
If you’re refinancing to a new home loan for a better rate, remember that sometimes the easiest thing to do is let your lender know you’re thinking of refinancing, and ask for a better rate. In many cases they’ll give you a discount, saving you the trouble and cost of refinancing.
Questions to ask your lender about low doc or alt doc home loans
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