Low doc home loans are designed to assist people who do not qualify for a traditional home loan to buy a property. Low doc (or low documentation) home loans still require the application to be made declaring all your assets and liabilities, however you may not be required to provide much of the paperwork that is necessary with standard home loans, such as proof of income. The low doc home loan relies more on a method called self-verification, where you state your income without the verifying documentation, however the lender still needs to know what your liabilities are as well as responsible lending procedures to ensure you can service the home loan.
Who can benefit from a low doc home loan?
Low doc home loans are designed to benefit those people who have some existing equity or a deposit saved, and have trouble showing evidence of regular income. This could apply to the self-employed or casual workers who do not have their tax returns up to date. Low doc loans are also sometimes abused by people who have income they have omitted to declare to the taxation office. Failure to declare taxable income is an offence and, if caught, offenders are forced to pay penalties that far outweigh the savings they intended to make by breaking the law.
Low doc home loans generally have certain conditions and extra costs attached, such as:
- higher interest rate, although the more financial documentation you can produce, the lower the rate often is.
- additional and inflated fees and charges.
- compulsory mortgage insurance over 60% LVR
Low doc home loans are not suitable for everyone and the potentially higher fees and charges could be financially detrimental. But if a full doc home loan isn’t an option for you, then a low doc home loan could be the solution if you need a home loan and are confident in your ability to be able to repay it.
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