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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. |
