What Is A Low Doc Loan And What Are Its Benefits?
A low doc loan is a mortgage with less documentation required. It is typically offered for borrowers who have a good credit score and an established income but might not have the same level of bank statements or asset documents that are usually required to get approved for a traditional home loan. In this article, we’ll go through the benefits and risks of this type of loan.
Understand What a Low Doc Loan Is
The financial statements and statements for assets required are less than what you’d need to provide if you were applying for a traditional home loan. In general, those who might qualify for this type of home loan include those with good credit scores as well as those who have been successfully employed in the same job or career field for at least 1 year. If you think you might qualify but are not sure, try to get advice from Lending Loop on the entire eligibility criteria for the loan. In addition, borrowers may be able to get approved if they earn about 20% more as compared to the total amount that’s required to pay monthly on their mortgage. This should be enough proof that borrowers will be able to afford the repayments.
What Are The Benefits of a Low Doc Loan?
Borrowers can make use of this type of home loan if they do not have many bank statements or asset statements to provide. For certain borrowers, having their own business might be enough proof that they will be able to afford the monthly repayments and hence may be eligible for a low doc loan. Borrowers who work as self-employed consultants, freelancers, and those with other sources of income can take advantage of such mortgages as well.
Another benefit included in this type of home loan is the shorter approval time. Approval could also depend on whether you’re employed by a firm or self-employed as mentioned earlier. Things such as your credit score and annual income will affect your ability to get approved for a low doc loan.
How to Apply for a Low Doc Loan
While the mortgage market is becoming more and more competitive, it isn’t always easy to get approved for a loan. A low doc loan might be the answer you’re looking for if this is true for you.
To apply for a low doc loan, your property needs to meet certain criteria, including:
- The property must be used as security on your home loan
- It can either be new or mortgaged against another existing property
- At least one applicant must have held their full-time employment for at least three years
A lower amount of documentation required means the lender will need fewer details about your financial situation. This can be beneficial if you are self-employed or have fluctuating income due to commission, bonuses or even working on an irregular basis.
The main benefit of this type of home financing is flexibility. If you do not have the required paperwork and don’t qualify for a normal deal, then your only other option is to borrow from another source, such as family or friends. This type of loan might be ideal for people who are self-employed or have seasonal jobs that can fluctuate their income over the course of a year. Additionally, borrowers with a knowledgeable and experienced broker can often negotiate the right deal.
Risks to Consider
As with any loan, there are risks to consider when you apply for a low doc mortgage. For example, some lenders will only let you borrow up to 80 percent of the property’s value, which is less than what most traditional mortgages allow. You also might be charged higher interest rates than with other types of loans. However, if your credit scores are good and you have enough savings to put down an adequate deposit on a home, this type of loan might be just what you need.
While lower documentation loans can be extremely convenient for borrowers with good credit scores and an established income, if you borrow more than 80% of the property’s value then there might also be additional fees that will apply. Additional interest rates may also apply when borrowing above 90%. If this is the case, it is important to consider whether these payments would cause financial difficulties in the future as you could end up paying back thousands of dollars more than required.
If you have a good credit score and a steady income but lack the paperwork, then it might be worth looking for a lender who offers this type of loan. However, before committing to anything, make sure you understand all of the terms and conditions that will apply.