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Should I get a low doc loan?
If you want to buy a property but you are self-employed or
only work casually, you may have severe problems in
arranging a standard home buyer’s loan. In this case,
a low doc loan could well work for you. However,
before you take the plunge on a low doc loan, you should
consider the whole situation very carefully. It may
sound like a great deal, getting a loan which doesn’t
require you to provide the masses of paperwork lenders
usually ask for in this situation, but a low doc loan is not
generally given to you out of the goodness of the lender’s
heart. They need it to be worth their while, so it is
up to you to make sure that you can afford it.
A low doc loan will allow you to buy a home while providing
very little in the way of documentation, but you have to
remember that lenders providing low doc loans are not
necessarily paying that much attention to whether or not you
can actually afford the repayments, so it is up to you to be
sure that you can. There are various negatives about
low doc loans that you should make sure you are aware of
before committing yourself.
Basically, the less documentation you provide and the higher
the LVR, the higher the interest rate will be and you need
to be sure that you can afford repayments at this interest
rate. A low documentation loan could have an interest
rate significantly higher than the market standard – if you
can afford it, that’s great. If not, you could find
yourself in real trouble. Likewise, you will usually
be under an obligation to purchase mortgage insurance, but
this is not to cover you against not being able to pay your
mortgage payments. It is there to cover the lender, so
if you find yourself unable to keep up with the payments on
your low doc loan you could still lose everything, even if
you have the compulsory mortgage insurance.
Something else to consider is whether or not you have enough
to make the required down payment under the terms of a low
doc loan. The down payment for a low doc loan
generally has to be higher than you would have to pay for a
standard loan, as the amount loaned in relation to the value
of the property is usually less. This means that you
will have to have a higher deposit in the first place in
order to get a low doc loan or no doc loan.
A low documentation loan sound like a great idea, but you
should always remember that the lender is not making you a
loan because they think you are a great person. The
object of lending money is to get more money back than they
originally lent out, so it is entirely up to you to make
sure that you can afford all the fees associated with
setting up the low doc loan, which tend to be higher as
well, as well as the higher deposit and higher interest
payments. In the right circumstances a low doc loan
could work very well for you, but make sure you know what
you’re getting yourself into
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