While lo-doc & no-doc loans were originally designed exclusively for self-employed people, some lenders have modified their products to include people on regular wages using the money for investment purposes.
Unfortunately, the Global Financial Crisis (GFC) hasn’t done any favours for Lo Doc loans in Australia. What used to be fairly easy is now a lot harder. The reason for this is changes to government legislation around lo doc lending and as a result, Mortgage Insurers becoming increasingly wary of Lo Doc loans through Mainstream.
One interesting side note about mortgage insurers is that some lenders credit score while other lenders (who are using the same mortgage insurer) don’t. If you have made a couple of enquiries for finance in the last 6 months, you need to be very careful which lender you chose or you might be knocked out by credit scoring because you went to the wrong one.
In 2009, the Mortgage insurers increasingly tightened their policy to make Lo Docs over 60% difficult. Below 60% there is no Mortgage Insurance and therefore it’s up to the individual lender and most of them still work with some sort of variation on the old, simple lo doc structure. In late 2010 when the lo doc lenders were getting back on their feet, the Federal Government changed the rules for lo doc lending when they regulated the credit industry and took control of it from the states. Part of the new guidelines which came out through this process was that it was no longer good enough for lenders to take the word of the self-employed applicant as to how much they earned and required the lenders to back the income figure up with some form of verification.
The verification requirements have predominately been left up to the lender’s discretion and there are a number of different interpretations. Some want BAS statements, some want an accountant’s letter, some want 3 or 6 months business bank statements and some want a combination of any and all.
A couple of our specialist lenders are doing cash out to 80% on a refinance and will accept people with minor credit history problems. They will also accept either an accountant’s letter or 6 months business bank statements as proof of income. The interest rates for these loans are a little higher than mainstream lenders but they are easier to get.
But back to mortgage insurers…
There are two main Mortgage insurers and they have different views on what a lo doc loan is now. Keep in mind that for first home buyers doing a Lo Doc, you need to show the 20% deposit in genuine savings. If the funds have been given to you and not saved, we may need your loan to go through a specialist Lo Doc lender but there are ways… give us a call
The first (Genworth) thinks that the future of Lo Doc will be tied to BAS statements and now requires BAS statements as well as proof from the ATO that the BAS has been paid and is the figure stated. They then use 40% of the income after expenses as income to service the loan. If you can meet this requirement then you can do a purchase or refinance up to 80%.
The second (QBE) have retained the simple Lo Doc mentality and don’t generally require BAS statements for purchases and will also look at refinances using business bank statements as proof of income. QBE will generally require you to be registered for GST for at least a year. They have issues with cash out though and will generally only refinance and consolidate current home loans, credit cards car and personal loans.
QBE are also very hard on credit scoring (they may decline a loan if you have too much activity on your credit report). The most common lender that this applies to seems to be Bankwest for no apparent reason.
There is another exception to the rules, some lenders consider a sub-contractor who only works for one person on a full time basis to be the same as an employee. We can often get these loans through as full documentation loans. Again, the best option is to call and discuss your situation to see which solution is right for you.
All of the above loans require you to be self employed for 2 years and registered for BAS if your TURNOVER is over $75,000. There are still lenders who do loans for people who have had an ABN for less than 2 years but they can be on a case by case basis so you should call 1300 139 883 to discuss those scenarios.