If you haven’t bought a lot of property before, getting your first look at all of the different home loan products offered by lenders and mortgage brokers today can be quite confusing. Many lenders’ marketing campaigns blur the lines between the low doc loan and the non conforming loan, and it’s hardly uncommon to think these two products are the same. This isn’t exactly the case.
While both types of loan are designed to appeal to borrowers who are self-employed or otherwise outside the criteria imposed for standard loans, there are some distinctions to be drawn between the two.
Low Doc Home Loan Important Features
The name of this sort of loan points towards its key feature: It’s intended for borrowers who don’t have the usual financial documentation required for traditional loans. Those who lack payslips, tax returns, and other such paperwork are the core demographic for low doc loans. They are principally designed for small business owners who for whatever reason don’t have the usual supporting documentation available for lenders to inspect.
The information required to substitute for these documents varies from lender to lender. Some will work with borrowers who make statutory declarations of their intent to repay the loan; others require a letter from a financial professional (e.g. an accountant) detailing the borrower’s ability to pay.
What do You Need to do to Qualify
Regardless of the details, low doc home loans are usually only offered to borrowers who have strong credit histories. A few small defaults on debts like utilities might be forgivable. Major credit problems like bankruptcy will make it impossible to secure this type of loan.
Most borrowers will be required to deposit a significant amount of the total purchase price before taking out a low doc loan. 20 percent deposits are typical; some lenders may require larger deposits. Australian borrowers can now obtain low doc loans for both private and investment use.
At one time, the interest charged to a low doc loan borrower would always be significantly higher than that charged to a borrower with a standard loan. This has started to change in the past few years; many lenders on the home loan market have cut the rates they charge on their low doc products in order to make them more attractive to borrowers.
Non Conforming Home Loans Important Facts
The non conforming loan is designed to meet the needs of borrowers who cannot meet standard loan criteria. Borrowers with bad credit, a lack of steady employment, overseas residency, or low deposit may be able to secure the financing they need through a non conforming loan.
What Kind of Interest Rates can You Get?
Lenders who offer non conforming products are taking on greater risks than those offering standard loans. They generally hike up the interest rates on non conforming loans to compensate for this increased level of risk.
Borrowers should always take the time to learn about all of the requirements and obligations involved in any home loan product before making any commitments. Interest rates are not the sole point of interest; re-draw options, fees, loan portability, and alternate repayment methods also need to be considered.