Low doc or “lo doc” loans have become available by lending institutions to cater to a particular market. This market is comprised of people who either cannot, or would prefer not, to disclose financial statements and taxation documents.
Such people might include the self-employed, who have the assets and income needed to support a loan, but who are unable to provide the necessary documentation at the time of application. You do not have to provide proof of your income.
For a traditional mortgage, lenders require the self-employed to have been in business for a minimum of 2-3 years to qualify. They also require tax returns and statements for this period. When offering lo doc loans, a lender is recognizing that it can be difficult to keep your financial documentation up to date – after all, you are busy running a business.
That’s not to say lenders will just hand over the loan amount to anyone. Most will ask you to complete a standard loan application together with an income ‘declaration’ form – what they call “self certification”. A clean credit history is required, but you do not have to disclose your income versus asset position.
Note though that some lenders may not lend in what they determine “high risk” areas, which could be rural allotments or city high-rise buildings.
Features of a Lo Doc Loan
Reputable lenders will ask for a greater deposit than for a traditional loan, and in the past that has been between 10 and 20%. However from December 2008 there will be a limit to the amount borrowed of 80% of the property value, meaning you will need to furnish a 20% deposit.
Most other features and loan types remain the same as with a traditional loan products, including:
• Principal and interest
• Fixed rates
• Interest only
• Offset accounts
• Lines of credit
• Building
• Refinancing
Just about all lenders will require borrowers to take out lenders’ mortgage insurance, and some may charge a higher interest for this type of loan. It is possible however, to negotiate a reduction in interest rate once you are able to furnish the documentation required of a traditional loan.
Do you need 80%?
The main consideration for borrowers is to find the loan is right for their circumstances at the time of application. Shop around, and only deal with licensed and reputable lenders – and if you need more than 80% - get your application in NOW!
In uncertain economic times, it is important to know the different options available to you when deciding the right loan type for your situation.
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