As the name suggests, a no-doc home loan is a home loan that requires no proof of income documentation. When you apply for a standard home loan, you’ll usually need to provide proof of income and employment and may also have to include tax returns and payslips with your application. With a no-doc home loan, you may not need to provide any of these documents to apply for a home loan.
While this sounds like an incredibly fast and convenient way to apply for a loan, it’s not the case. Given the high risk these loans carry, no-doc home loans are rare in Australia and are generally not offered by many banks or credit unions. In Australia, no-doc home loans aren’t common, and low-doc home loans are usually offered as an option for self-employed borrowers who don’t have traditional proof of income.
Regular home loans usually require the borrower to provide full documentation proving their income, employment and ability to pay the loan back. No-doc loans don’t require the borrower to provide as much financial documentation when applying for a home loan.
For self-employed borrowers who don’t have access to regular PAYG payslips, applying for a home loan can be a challenge. This may also be the case for freelancers, investors, contractors or those who have recently started a small business and have access to very limited financial documentation.
While most financial institutions don’t provide home loans to customers with no financial documentation, there are some lenders that do offer no-doc home loans. Each lender will have their own conditions, but no-doc borrowers will usually need to provide an ABN showing proof that they own a registered business.
Where low-doc home loans usually require the borrower to provide tax returns, BAS statements and an accountant’s letter, no-doc home loans don’t require any of this documentation. In lieu of financial documents, when you apply for a no-doc home loan, you still have to sign a statement of your assets and liabilities or a declaration that confirms you can afford to service the loan.
As no-doc home loans pose a greater risk, some lenders may impose additional conditions onto the loan and insist that the loan is secured by a commercial property and be in the name of a company or trust with an ABN.
Depending on the type of no-doc loan you apply for, you may only be able to use the funds to purchase an investment property, and the lender may impose restrictions on the type of property you can use the loan for.
As there is no documentation or proof of income to back up the loan, the actual security is all the lender has to mitigate the risk. For this reason, no-doc loans aren’t widely available, and lenders that do offer no-doc home loans tend to have much tighter conditions.
Given the lack of financial documentation, no-doc home loans carry a greater risk to the lender. To offset the risk, no-doc home loans usually have higher interest rates and fees and may also require a larger deposit.