Has your mortgage application been put on hold because of your credit history?
If you have a less than perfect credit file and no evidence of your income then most lenders will see you as a high risk and will decline your loan. Thankfully, if you present the right documents then you can get approved.
The Basics
Can I get approved?
Do you qualify for a low doc loan with bad credit?
- Borrow up to 85% of the property value.
- You’ll need to provide limited proof of your income (read on to find out more).
- You’ll need an active Australian Business Number (ABN).
- The lender will ask for an explanation for your credit history.
If you meet this basic lending criteria then we can help to get your mortgage approved.
Give our mortgage brokers a call on 1300 889 743 or enquire online and they’ll get back to you with the best options.
What will my interest rate be?
There isn’t standard pricing for a low doc loan with a bad credit history. The lender will use a risk matrix to determine the overall risk of your application and their interest rate.
Here’s how they determine your rate:
- Credit history: The better your credit history, the better your rate.
- LVR: The higher the percentage of the property value that you are borrowing, the higher your rate. This is known as the Loan to Value Ratio (LVR).
- ABN age: Some lenders charge a higher rate if your ABN is less than two years old.
- Income evidence: The more income evidence that you can provide, the better your rate.
What is the secret to getting the lowest interest rate and fees?
Simple! Each specialist lender has a different risk matrix and sees different loans as a high or low risk. By matching your application to the right lender we can save you a fortune.
In addition to this we may recommend a few small changes such as getting a slightly larger deposit or paying one of your defaults so you fit into a different part of the lender’s risk matrix.
What are the credit criteria?
The policies used by our lenders vary significantly. Some will consider loan applications that others will not and they often price the same loans in different ways.
So what do they look for when assessing your credit history?
- Size of credit issues: Small defaults are better than large defaults and large defaults are better than bankruptcy.
- Age of the issue: How long ago was the credit problem? How quickly was it paid or settled? These details can matter.
- Multiple issues: Several defaults at one time indicates a one off event but having the same defaults spread out over a few years indicates long term hardship.
- Default status: Is the default current, paid, unpaid, cleared out or settled. Each is assessed differently but all can be accepted.
- Bankruptcy & Part IX: How long ago was the problem? Are you discharged? If not, the new loan must pay out the bankruptcy.
- Debt consolidation: How many debts are you refinancing into the loan? Are they being paid on time?
- What went wrong?: Your story matters. Was it your fault? Have you learned from this experience? Will it happen again?
Don’t think that your situation is too hard! Give us a call on 1300 889 743 or enquire on our website and we’ll let you know how to get approved.
How will they assess my property?
All lenders want to have a standard property in a good condition and in a good location.
This is so that if you get into financial trouble in the future you can sell the property easily and why banks prefer units or houses in capital cities or major regional locations.
Vacant land, construction, hobby farms and small towns are considered to be a high risk security property so they are more difficult to finance.
Does the loan purpose matter?
If you are refinancing your existing home loan then the lender will look at if you are releasing equity and the repayments of your current loan.
If you are purchasing a property then the lender may look to see if you saved the deposit yourself or may look at your rental history.
Other loan purposes such as funding your business, buying investment properties or investing in shares are assessed based on their merits.
Ultimately, each lender has their own policies and credit criteria. It’s just a matter of picking the right lender for your situation.
Who can’t get approved?
The main situations where someone cannot get approved are:
- They cannot afford the loan.
- They cannot provide the required limited income evidence (see on this page).
- The security property is outside the lender’s guidelines.
- They do not have a big enough deposit.
- They are currently bankrupt.
In these cases we may suggest that you make some changes to your situation before we lodge your application with one of our lenders.
Income Evidence
Low doc doesn’t mean no financials
Low doc loans still require some form of income evidence as required by the Nation Consumer Credit Protection (NCCP) Act.
The most common forms of income evidence are:
- Business Activity Statements (BAS): This shows the turnover of your business which is an indicator of your profitability.
- Accountants letter: Some of our lenders will accept a letter from your accountant that confirms your income.
- Business account statements: The cheque account statements for your business can show your turnover, which indicates your profitability.
You will also sign an income declaration form which is your statement to the lender informing them of your business income. The income you declare must make sense considering your age, asset position and the type of work that you are in.
What if you have no income evidence? Then, firstly, ask yourself if you can actually afford the loan! If you can then there is usually some way to prove your income.
If your loan is for business purposes, your finances are too complicated or you are behind with your BAS then a no doc loan may be suitable.
How will they calculate my income?
Your income will be assessed as the lower of the income that you declare on your income declaration or the income assessed by the lender.
Lenders typically use 40% to 60% of your BAS or business bank statements turnover to assess your income. It can vary depending on the business that you are in. You can use our BAS Income Calculator to see how some of our lenders work.
For example, a cafe may have 40% of its BAS turnover assessed as income whereas a consultant may have 80% of their BAS turnover included. We can often argue your case with the credit department if there is a good reason to use a higher income percentage.
With an accountants letter however, the lender will just use the income that your accountant declared as long as it matches the income that you declared.
Are no doc loans available?
Yes, it is possible to get a no doc loan with a bad credit history but the interest rate may be relatively high. Your loan must also be unregulated by the NCCP Act.
You can find out more on our no doc loans page.
Applying
Can a major bank finance my loan?
No, major banks aren’t interested in low doc loans or people with a bad credit history. With the two combined they’ll just show you the door!
However, our goal is to get your loan refinanced with a major bank in a few years time. Most people can prove their income within a few years and if their credit history has improved and their repayments have been on time then we can usually get a major lender to give you a second chance.
Which lenders can help?
We use specialist lenders or non-conforming lenders that take a common-sense approach to lending.
These lenders don’t have branches and rarely market themselves to the general public. When they do, they rarely inform the public of their policies or pricing.
Specialist lenders have different loan features to the major banks, in particular, they almost never offer construction loans, offset accounts or line of credit loans so it is more difficult to get the type of loan that best suits your needs.
It’s for these reasons that most people with a bad credit history use a mortgage broker to help them to choose the right lender and negotiate the best interest rate.
Apply for a low doc loan
Do you need a low doc loan from a lender that will accept the defaults on your credit file? Don’t have up-to-date tax returns or the paperwork that you need?
Give us a call on 1300 889 743 or enquire online and one of our mortgage brokers will call you to discuss your situation.