LoDoc home loans
Low doc home loans are a loan option provided for borrowers who have limited documentation to support their home loan application. If you are self-employed or own a small business and would have trouble providing proof of income, or regular paperwork,
Financial institutions require paperwork ranging from pay slips and tax returns to prove you have the income to support your home loan repayments. As everyone’s situation is different, not everyone can provide this type of proof of income so a low doc home loan is an alternative option offered by various Australian lenders.
These types of loans are generally catered for the self-employed but could be considered by those borrowers with a bad credit rating or those who are not full-time workers.
As low doc borrowers are unable to offer the same sort of security to a lender as a standard borrower can offer, the loans tend to require a higher deposit and usually have higher than average interest rates. This is because they are considered a higher risk to the lender. In some cases you may also have to secure your loan with viable assets such as cars or previous homes and investment properties you have purchased.
A low doc home loan may be the answer to your borrowing woes.
What is a low doc home loan?
Low documentation loans are flexible lending solutions for self-employed borrowers. These are great for freelancers, contractors and other people who don't work regular jobs. A low doc loan is specifically designed with those borrowers in mind who have assets as well as income, but cannot provide payslips, financial statements or tax returns as documented evidence of income.
These types of loans use a type of self-verification system where you can state what you make with a declaration document. While this does mean that you won't have to give any actual proof of your income, the lender will still do their usual credit scoring as well as confirm that you will be able to pay for your loan with the income which you have stated on your form. You may also be required to provide an accountant's letter and bank statements.
Some of the main differences between low-doc home loans and other more traditional types of home loans are:
A lower maximum LVR, meaning you can usually only borrow up to 80% - although some will lend up to 90%
Sometimes a slightly higher interest rate, to compensate lenders for the increased risk low doc lending presents
A low-doc home loan applicant doesn't have to produce company financial reports or taxation returns in the same manner as do other home loan applicants.
Lenders will accept an income declaration that confirms the applicant can afford the loan and has the ability to repay.
Low doc home loans are a great option for the self-employed, but since they often carry higher costs, borrowers should take the time to work all the figures out using a loan calculator to ensure they can really afford these loans. Additionally, it is often a better strategy to wait until you have a 40% deposit so you don't have to pay the high LMI premiums such high-risk loans incur.
No matter what it's for, there's never been a better time to borrow money.
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