Ever since the new National Credit Code (NCC) came in, traditional lenders have correctly been wary of Low Documentation (Low Doc) lending to consumers for residential property.
However quite a number of traditional lenders, including a subsidiary of one of the ‘Big 4’, continue to lend on a Low Doc basis, so why not Vendor Financiers.
Qualifying Your Low Doc Prospects
The main challenge a self-employed home buyer has when applying for a traditional loan or an Instalment Contract is substantiating their income. They can usually complete the rest of your application as easily as any PAYG applicant but the Income Section often has lots of missing information.
Is Low Doc Lending Possible Using Rent To Buy?
As a Lease/Option (Rent To Buy) is not regulated by the NCC, there are no mandatory Responsible Lending Guidelines like there are with other, credit based, vendor finance techniques, i.e. Instalment Contracts and Deposit Finance.
Therefore it’s up to the Rent To Buy (RTB) provider to determine what level of supporting paperwork is required from their buyers. However it’s worth remembering that RTB buyers usually need to transfer to a credit contract, at the end of the term of the RTB.
It therefore makes a lot of sense to qualify your RTB, Low Doc prospects in a similar way to your Instalment Contract and Deposit Finance, Low Doc prospects.
Verifying Income for a Low Doc, Instalment Contract Application
(This process also applies to Deposit Finance) Most traditional lenders use two means to verify income for Loc Doc applications. They are:
- BAS Statements covering the last 12 months and a ‘Low Doc Declaration’. The main challenge with this approach is, if your applicant can supply these BAS Statements, there’s a reasonable chance they could get a Full Doc loan. Here’s a copy of a ‘Low Doc Declaration’.
- An income verification letter from the applicant’s accountant and a ‘Low Doc Declaration’. If you are able to collect the necessary BAS statements that’s a bonus. However if these BAS statements aren’t available the applicant’s accountant may be able to supply the necessary letter. It’s suggested this letter should contain:
- A statement showing the applicant is the accountant’s client
- A statement indicating the type of business conducted by the applicant
- A statement indicating the income figure, declared by the applicant, is not an unreasonable estimate of their annual net income (before tax) and PAYG income.
A Low Doc Declaration & Accountant’s Letter – All In One
To simplify the process for you we’ve combined the Declaration and Letter into one, called the ‘Low Doc Declaration & Accountant’s Verification’ form.
With the NCC being relatively new, it isn’t easy to determine exactly what is required in the way of income verification documentation. However it seems quite a few traditional lenders are satisfied with the procedures outlined above. The final decision is yours.
The downloadable ‘Low Doc Declaration’ and ‘Low Doc Declaration & Accountant’s Verification’ forms, available above, are supplied in MS Word format. This allows you to modify them to your requirements.