Can I afford a low doc loan?

When you want to buy a house, the mortgage lenders generally require you to provide huge amounts of documentation about your income before they will even consider lending to you.  This is where a low doc loan can be a great idea, providing you with the necessary money with which to buy your house without you having to amass huge amounts of paper.  However, a low doc loan is not necessarily the easy answer.  You pay for the privilege of not having to provide all that paperwork and the price of this may be rather higher than you can actually afford.

A low doc loan lets you get a loan with very little to back up what you say about your income, but the lender protects itself in other ways.  For a start, the amount that you can borrow will usually be lower than a standard lender will lend you, usually only around 80 - 85% of the value of the property you are hoping to buy, which means you will have to put up at least 20% of the property’s value.  If you can afford that amount as a deposit, that’s great.  Otherwise, you need to start finding paperwork and go to the standard mortgage lenders.

Another high cost associated with a low doc loan is the fees and charges that you will have to pay as part of the process of setting up the loan in the first place.  These are quite an expense anyway, but with a low doc loan they are generally quite a bit higher than the standard lenders would charge, as this is another way that the lender protects itself from the possibility of you defaulting on the loan.