Low Doc Home Loans

By: EconomyWatch Content   Date: 14 December 2009

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Low doc home loans are flexible alternatives for individuals who do not qualify for standard home loan programs. Their aim is to help individuals who cannot provide evidence of income as required by lenders before they grant regular home loans.

How Do Low Doc Home Loans Work?

An individual has to apply in writing for low doc home loans as online loan approval is not applicable. Apart from written application, loan approval requires minimal amount of documentation. Basically, low doc home loans require self-verification process. Here the borrowers declare their regular income, assets or liabilities without providing respective evidences. However, one has to provide some sort of evidence to indicate financial savings such as equity or deposits as required by the lender.

Low Doc Home Loans: Types

Three types of low doc home loans are: 

  • Self-declared income: The lender offers loan against a self-attested declaration of income. No supporting evidence is submitted. Most lenders grant a loan up to 80% of the actual cost price.

  • Account statement: For this type of loan, an individual submits some sort of supporting evidence such as letter of credential. However, this type of evidence is not a part of standard documents required for regular home loans. The interest rate is lower than the previous type but higher than regular loans.

  • Asset lend: These types of loans are granted purely against the underlying property. It requires minimal evidence or at times no supporting documents.

Low Doc Home Loans: Checklist

The eligibility conditions for purchasing low doc home loans vary among lenders. Thus, comparative marketing is essential in this case. Some of the essential considerations for buying a low doc home loan are:

  • Look for a lender who offers low doc home loans in both fixed and variable interest rate options.

  • Lenders charge inflated interest rates due to increased risk factors involved in low doc home loans.

  • Compare interest rates for different lenders before zeroing in on a particular loan product.

  • One has to buy mortgage insurance as a security against payment default.

  • Check out the down payment limits from different lenders in respect to what you can afford.

  • Lenders will require borrowers to pay miscellaneous charges.

  • Consider the term of loan provided by a lender.

Low doc loans attract high interest rates and processing fees. That is why they are not suitable for any individual who can provide required documents for a standard home loan.

           


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