Each borrower is different. Some applicants have a spotless credit record, impeccable loan paperwork and can therefore go after the most competitively priced home loan product on the market. On the other hand, many borrowers struggle with providing adequate documentation, e.g., income proof and are consequently not eligible for a regular home loan. This is where alternate documentation loans come into the picture.
What is an Alternate Documentation Loan?
Alternate documentation loans, or ‘Alt-doc-loans’ for short, are loans designed for individuals who cannot provide traditional income proof like payslips. Lenders offering Alt-doc-loans work with different forms of documents like bank statements and business-activity-statements, among other options. Alt-doc loan documentation varies across lenders. While self-employed professionals and small business entrepreneurs form the most significant chunk of alt-doc-loan applicants, is it also an excellent alternative for any prospective borrower that unable to meet the stringent documentation requirements of a traditional home loan.
How are they different from a traditional home loan?
While there could be many differences across different products, the most common ones are as follows.
#1. Income Proof Documentation: Traditional home loans have more stringent documentation requirements like three months of most recent payslips or the latest tax returns. Documentation with an alt-doc loan is less stringent, and options like business activity statements and bank statements are usually acceptable. Again, this varies as per the lender.
#2. Interest Rate: In the absence of standard home loan documentation, an Alt-doc-loan applicant is viewed as a borrower with a slightly higher risk when compared with a regular home loan applicant. The interest rate for an alt-doc-loan is, therefore a little higher.
Documentation for an Alt-doc-loan
Different lenders have different documentation needs. Here, however, is a list of the most common forms of documentation asked of applicants
- Australian Business Number (ABN) registration for your business
- An accountant declaration of your income
- Six months of Business Activity Statements (BAS)
- Six months of business bank statements
- Six months of tax returns
- Three months of personal bank statements
Alternate Doc Loan Myths
Some common alt-doc loan misconceptions are:
- No documentation is needed. As the name suggests, Alt-doc-loans need alternative forms of documents like BAZ and bank account statements.
- Alt-doc-loans are primarily for self-employed professionals and small business owners. If an entrepreneur or self-employed professional can provide their latest 2-year tax returns and have a good credit record, then in all probability, they can secure a regular home loan. Alt-doc loans are designed for prospective borrowers who can’t provide standard documentation. This could include salaried and self-employed individuals
- Alt-doc loans from major lenders are the best. Several non-major lenders offer alt-doc loans with better features. Research your options well before taking a call.
- You won’t benefit from professional guidance. The alt-doc loan landscape is complex with hundreds of lenders and offerings. It’s best to go with a mortgage broker who’ll scope the market on your behalf and manage your loan paperwork. What’s more, is that mortgage broker services are usually free for borrowers.
Since alt-doc loans require a thorough understanding of the borrower’s circumstances, it’s best to go with a lender that invests the time to assess the merits of each case. At Resi, in addition to a straightforward application process and excellent turnaround time, we also pay individual attention to each applicant. Click HERE to reach us for a discussion.