If you’re in the least familiar with the financial terminology, you know that low doc loans refer to those loans that can be acquired with minimal paperwork. Because of this, they are mainly for self-employed people or entrepreneurs with small-sized businesses.
Of course, low doc loans can refer to any type of loan, from a mortgage and a car loan to a business loan. Now, there seems to be a misconception going around saying that all low doc loans are utterly devoid of dangers.
We’ve said it as many times: no loan, regardless of its purpose, is 100% safe. In the following, we will outline both the advantages and the disadvantages of getting a low doc loan for your home.
The Upsides of A Low Doc Home Loan
These loans are fantastic for freelancers/self-employed people
The requirements of the banks are harsh, and they really don’t care that you can, one way or another, repay the loan.
You have to provide proof of your income, tax returns and other documentation that is difficult to muster when you’re your own boss. In this respect, low doc loans are the best alternative.
The interest rates are fixed
You won’t need to worry that all of a sudden, the interest rate grew to alarming quotes. They will always stay the same. That’s why these loans are called “fixed.” You will have full control on the repayments, and the rates won’t fluctuate.
This can happen to loans taken out from a bank, but not with low doc ones.
The credit score isn’t a problem
Go to a bank with a low credit score, and you’ll be looked at like you are some kind of tedious criminal. Your chances of actually getting the loan you need fall under 50% or even less. The lenders that provide low doc loans are not as concerned with your rating as banks are.
This is mainly because they can understand the reasons why your credit score is chipped, as long as it’s not a consequence of not being good with handling finances.
Now, since we’ve seen the perks, we have to take a look at the cons. Eventually you’ll be able to decide whether low doc loans are a good choice for you or not.
The Downsides of A Low Doc Home Loan
Higher interest rates
This isn’t universally applicable, that’s why we recommend you compare many loans before you choose one. Usually, low doc loans come with interest rates that are higher than those you’d pay on a bank loan.
But then again, you cannot get that bank loan, so this isn’t something you can change. In some cases, you might be required to pay the LMI (Lender’s Mortgage Insurance), which is an additional cost you wouldn’t have paid for a loan taken from a bank.
They may not be as flexible as you may think
When you go to a bank, the representatives will show you tons of loans with adjacent features. A private lender, on the other hand, does not have as large a catalogue of options, so banks definitely win at flexibility.
If the mortgage rate goes down, you’ll be paying more
This means that the period you planned on repaying the loan will be lengthened. This isn’t really much of a tragedy, but it can be annoying when all you want is just to get rid of debt sooner than later.
The Importance of Comparison with a Low Doc Home Loan
No two low doc loans are the same. Before you make a decision, compare the lenders and check out these aspects: interest rates, the documents required from you, the flexibility of the loans and the terms.
The one that has the best features should be the one you choose to go with. Unfortunately, many people today undermine the importance of this comparison. To be fair, it’s their fault. It certainly doesn’t take that long to make sure your decision won’t be something you’ll regret in the future.
Purchasing a house is no small thing. Purchasing it with borrowed money even less so. If you’re not in the position to get a loan from the bank, your only solution is to get a low doc one.
Now that you know both the perks and the pitfalls of this type of loan, you can make an informed decision. For additional information, feel free to contact us on 1300 138 188 for a free consultation.
Ask for a low doc home loan, and you’ll be getting instructions from professionals that have helped many other people that were, at some point, in the same predicament as you are now.
And make sure, for your own sake, that you’ll be comparing at least five loans before sticking to any of them. You sure don’t want to get some terms and interest rates that are anything but okay.