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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.
Not only are the fees and
charges usually higher with a low doc loan,
but the interest rate that your payments
will be based on will also be higher than
the standard, and this is something that you
really have to be careful about. Be
realistic – can you afford those monthly
payments? Because if you can’t, you are
better off not going for a low doc loan. I
mean, let’s be honest, there isn’t much
point in spending all that money to get the
loan if you will then not be able to make
the payments on it. |
