Low Doc or No Doc Home Loans

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.