Is A Low Doc Home Loan Your Best Choice?
What Exactly Are Low Doc Loans?
A Low Doc Loan or a Low Doc Home Loan is something that was created in order to smooth out the process of applying for a loan for borrowers who are self-employed, considering how much this sector of the population is growing in size. Low Doc Loans are commercial and residential home loans intended to assist individuals that have the financial resources to make payments on a loan but are unable to come up with the minimum documentation needed to prove their income.
In traditional circumstances, a lender would ask the potential borrower to give them a minimum of two years worth of tax returns or audited financial statements. A number of business owners find that keeping their paperwork current is hard to do, and many financial institutions understand this.
Low Doc Loans are in essence the same as any other bank loan. They can come with either a fixed or variable rate interest arrangement, although the interest rate might be a little higher than standard in order to compensate for the additional risk a financial institution takes with lending to such a borrower.
Comparing A Bad Credit Loan To A Low Doc Loan
No one should get a Low Doc Loan confused with a Bad Credit Loan. Just saying the phrase “bad credit” carries the insinuation that the borrower in question has had difficulty keeping up with bills or has even filed for bankruptcy in their past. A Low Doc Loan is not just something for individuals with sub-par credit, as they’re intended to help self-employed individuals or people who own a small business with the mountain of paperwork involved in getting a conventional loan.
In many cases, the actual credit level and rating of the borrower does not matter, as the loan has to be secured using assets the borrower has as collateral. This can be money, property, or even a business. Australian banks routinely look for concrete evidence that payments for any new loan can be handled financially without risking the borrower’s power to keep up with his or her normal living expenses.
How Much Can Be Borrowed?
Loans like this are pretty much like any other. Normal lenders let individuals borrow up to four-fifths of the provided security value. A number of financial institutions let someone borrow a maximum of $2.5 million, if that amount falls between three-fifths and four-fifths of the provided security value. If you are looking for more than four-fifths, then you need to shop around, as well as think twice about whether or not you can make those payments.
For What Purposes Can I Borrow?
Any legitimate purpose is a reason for approved borrowing. Common situations include car loans, investing in a property for flipping or rental income, owning a property to live in, or even just to help build or grow your business.
Self-Employed Low Doc Loans
If you are self-employed or run your own company, you might not have all the required documentation for a conventional bank loan. Low Doc Loans are possible solutions that can help you get the financing you need without the normal piles of tax returns, financial statements, and other paperwork involved.
Businesses just starting out often use such a loan to gain the resources and capital they need to get off the ground. As a business gets into the repayment schedule and organizes financials more, such loans are often refinanced to lower interest rates or friendlier terms and conditions.
Low-Income Individuals Using A Low Doc Loan
If a person with a low income is thinking about a Low Doc Loan, then it is essential that person sit down and do an accurate budget projection stretching out several years into the future. Such documents might not be necessary for a loan application, but a bank or financial institution is going to be very interested in you meeting the minimum requirements for repayments. On top of this, such a loan has to be anchored to assets, of which only four-fifths of the value can be borrowed against. Failure to keep to the repayment obligations can mean the bank or financial institution reclaiming the secured assets in order to pay off the loan.
Who Out There Offers A Low Doc Loan?
Low Doc Loans are a product and service that are offered by the majority of financial brokers and lenders, on top of credit unions, major banks in Australia, and even some home building societies. It’s wise to start with the big banks first. A short consultation with a mortgage professional to talk about conditional preapproval for a loan can clear things up for you about the limitations and responsibilities you will have in such a monetary situation.