Key Takeaways
- You can refinance into or out of a low doc home loan depending on your financial situation and needs.
- If your credit score and financial situation have improved, a low doc refinance can help you get better interest rates and terms.
- If you plan on refinancing into a low doc loan, you will need to present either your last 2 BAS or an accountant's letter to verify income.
- It’s possible to refinance even if you have ATO debt, as long as the debt hasn't led to legal actions from the ATO.
- To get the best refinancing options available, talk to a lending expert like Dark Horse Financial. We can help you get the best deal for your new loan.
Low doc loans were made to help Australians who are self-employed or own a business get financing without having to show the same paperwork as a full doc home loan. But your loan needs could shift as your financial situation changes. You may be able to get better interest rates, more flexibility, or access to equity by refinancing into or out of a low doc loan.
Business owners who want to learn about the steps and requirements for low doc refinance can use this guide. We’ll go over the choices, pros and cons, and strategies for switching to a low doc loan because of irregular income or moving to a full doc loan now that you’re ready.
What is a Low Doc Refinance?
A low doc refinance refers to switching from one mortgage product to another, either into or out of a low documentation loan. Refinancing out of a low doc loan into a full doc loan can help you secure better rates and a higher LVR. Meanwhile, refinancing into a low doc loan (with the guidance of a mortgage broker) can help you get the benefits you want without having to present extensive documents.
1. Refinance Low Doc to Full Doc
Can you Refinance a Low Doc Loan?
Yes. Some borrowers start with a low doc home loan and later move to a full doc loan once their financial position improves or you can move from a low doc loan from lender to another. Moving to a full doc loan can offer several benefits, including lower interest rates and higher LVR limits, allowing you to secure a home with less deposit.
When Should I Move from a Low Doc to a Full Doc Home Loan?
A good time to consider the switch is when:
- Your Income Has Improved: If your business is generating consistent profits and you can show reliable income over the last two years, you may now meet the documentation requirements for a full doc loan.
- You Have Completed Your Tax Returns: If you have switched to regular employment a full doc application becomes possible.
- Interest Rate Savings Matter: Full doc loans usually offer slightly lower rates than low doc products. The switch can be worthwhile if your goal is to reduce your repayments or pay off your loan faster.
What are the Pros of Refinancing a Low Doc Mortgage?
- Full doc loans usually have lower interest rates.
- You can get a higher LVR limit (subject to LMI).
- You can use offset accounts, redraws, and payments that change.
- You can release equity for business or investment purposes.
- Lower rates can help you save more money in the long run by lowering the total amount of interest you pay over time.
What are the Risks of Refinancing a Low Doc Mortgage?
- Provided you’re refinancing to improve your situation any risks are negligble
- Your supporting documents need to demonstrate your income is sufficient to service the loan.
What’s Required to Refinance a Low Doc Loan in Australia?
To refinance to a full doc loan, you will need to provide full documentation, which can differ depending on whether you’re still self-employed or if you’ve switched to PAYG employment. Here’s what you’ll need:
Self-Employed Full Doc Home Loan Requirements
- Financials
- ATO Notice of Assessment
- Savings and Credit Card Statements
- Bank Statements
PAY Full Doc Home Loan Requirements
- 3 Recent Payslips
- Tax Returns
- Group Certificate
How to Refinance Out of a Low Doc Mortgage to a Full Doc Loan
Here’s how to switch from low doc to full doc after stabilising income:
- Apply Online: It takes minutes to fill out our online form. You can get help from us to find the best lender options and secure the best rates and terms.
- Formal Application: Once you agree on a loan and lender, we’ll submit your application for you together with all your document requirements.
- Approval and Settlement: Once the lender approves your loan, you’ll be asked to sign a loan contract and settlement will follow shortly after.
2. Refinance Full Doc to Low Doc
Can I Refinance Into a Low Doc Home Loan in Australia?
Yes. A low doc home loan refinance can also help you access equity in your property for business use, consolidating debt, or purchasing new equipment.
When to Refinance Into a Low Doc Loan
Here are some scenarios where refinancing into a low doc loan makes sense:
- Limited Access to Full Documentation: It can be difficult to refinance into a full doc loan if you’re newly self-employed or you haven’t completed your tax returns. A low doc refinance can provide temporary financing until your documentation is in order.
- Business Restructure or Growth Phase: During periods of business restructuring or expansion, a low doc loan product may be a better fit as servicing can be demonstrated either from your last two BAS or an accountant’s declaration.
What are the Advantages of Refinancing Into a Low Doc Loan?
- Good for self-employed people who don’t have traditional paperwork.
- Can let you free up equity for business or investment reasons.
- Non-bank lenders often offer low-documentation loans that are very competitive.
What are the Disadvantages of Refinancing Into a Low Doc Loan?
- Usually cost more than full doc loans.
- A lot of lenders limit low doc loans to 80% LVR.
What’s Required to Refinance Into a Low Doc Loan?
Low doc loans have less requirements than full doc loans. If you’re in the middle of restructuring your business or if your financial position has changed, it can be easier for you to qualify for a low doc loan. Here’s what you’ll need to verify income:
- 2 Recent Business Activity Statements (BAS)
- An Accountant’s Letter (if available)
How to Refinance Into a Low Doc Loan
Here’s how to switch from a full doc loan to a low doc home loan:
- Apply Online: Use our online form to apply. We can help you find the best lenders and get the best rates and terms.
- Formal Application: After you pick a loan and lender, we’ll send in your application and all the documents required.
- Approval and Settlement: After the lender agrees to your loan, you will need to sign an agreement. If you agree, sign the agreement and wait for settlement. The money will be sent out, and you will be able to pay off your existing loan.
Can I Refinance With ATO Debt as a Low Doc Borrower?
Yes, you can still refinance even if you have outstanding obligations to the ATO. Most lenders don’t check for tax debts when assessing home loans unless:
- The debt has been disclosed to credit reporting agencies
- The ATO has issued a default or court action
If your ATO debt hasn’t escalated into legal action, refinancing is definitely still possible as long as you meet the lender’s criteria.
Will Refinancing Affect Credit Score or LVR?
When you refinance, you’re essentially applying for a new loan, which leads to a credit enquiry. However, a single application will hardly affect your credit score.
Your loan to value ratio (or LVR) will typically only be impacted if you cash out equity in your property.
How to Find the Best Low Doc Refinance Options For Self-Employed Borrowers
If you want to find the best refinancing options, whether you’re refinancing into or out of a low doc loan, it’s best to get help from a qualified mortgage broker like Dark Horse Financial. We can help you figure out your financial situation and how much you need to borrow so you can find the right lenders. We can also help you get the best rates and terms on your new loan so you can save more with your new loan.
Final Thoughts
Depending on your income and financial goals, it may be a good idea for business owners to refinance into or out of a low doc loan. A low doc loan can help you get funds when you need it if you’re still putting together all of your financial documents. On the other hand, if your income is steady and you can provide the usual paperwork, switching to a full doc loan can save you money on interest and give you access to better loan features.
If you’re refinancing into a low doc loan or moving to a full doc product, the most important thing is to know where you stand financially. If you’re self-employed, you can choose from flexible refinancing options, especially when you work with lenders who know what small businesses need.
Disclaimer: Loans and their accompanying benefits are available only to those who qualify for them and have been approved. Though we put a lot of care into writing this article, the information presented within is general and doesn’t consider your unique situation. It is not meant to serve as a substitute for professional advice, and you should not rely on it solely for any major financial decisions. You should always consult with a professional when you’re dealing with finance, tax, and accounting matters.
Refinance Into or Out of a Low Doc Loan Today
If you’re not sure which way to go, talk to a lending expert who can look over your income documents and help you find the best refinance loans for your business goals.
