Learning The Difference Between Low Doc And Non Conforming Home Loans

If you haven’t bought a lot of property before, getting your first look at all of the different home loan1 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.

20What 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.

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Are You Looking For A No Doc Or Low Doc Home Loan?


As No Doc loans have been phased out in Australia and most other countries around the world since the Global Financial Crisis, the only option left these days are Low Doc Loans.

A low doc home loan, sometimes known simply as low doc, is a mortgage or a home loan where the documentation for the verification of your income will not be required. However, all of the other documentation will be.

Who are they Best Suited to?

These are loans ideally suited for independent contractors, self-employed, credit rating impai18red, investors, people who have had bankruptcy, a client that may have arrears on their current mortgage, or a borrower that has been rejected by the traditional lenders. This will include some people who have suitable incomes, but will take valuable time and money to meet bank verification.

Low doc home loans are usually a bit more expensive than the traditional loans, simply from the higher risk profile.

What can You Use these Loans for?

These loans are usually for people who are hoping to buy investment properties, residential locations, or are looking to refinance an existing property and they do not have current taxation returns or PAYG documents that will confirm their income, which usually is needed to sustain a regular investment loan.

There are basically three major types of no document loans or low doc loans:

Doc Home LoanNo Debt to Income Ratio Loans

These are loans for borrowers that may not want to state their income. There will be no debt to income ratio that the lender will have to take into consideration. With decent credit and good assets that a no ratio borrower has, it will make up for the lender not taking the borrower’s income information into consideration. If it is going to be a logistical nightmare for you to gather all of your income documentation, this kind of loan offer may be quick and easy for you.

No Documentation (No Doc) Loans No Longer Available

In order to get credit, a no doc loan will require a minimal amount of documentation. Lenders will evaluate your request for a loan using the base amount of financial information, and ultimate privacy is assured. It goes without saying that since the global financial crisis, there are not a lot of lenders that will still offer this kind of loan.

Low Doc Stated Income Loans

If you have income that fluctuates from week to week or month to month, the low doc loan or standard income loan will be the most attractive for you. However, unlike a no doc loan, low doc loan requirements will call for the borrower to disclose earnings, usually for about two years, and they may also have to show their bank statements and tax returns.

When you feel as though a low doc or no doc loan will fit your situation, you can speak with a mortgage expert. It could be beneficial for you to pay a steeper interest rate for such a loan. The right broker will be able to show you exactly how you can gather all the necessary documentation.

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An Introduction To Low-Doc Home Loans

22A “low-doc” home loan is one that’s issued to a borrower that does not want or is not able to provide the lender with proof of income. This situation makes most lenders consider low-doc loans to be high-risk. Proof of income is a key factor that lenders use in assessing the ability of a borrower to repay his or her loan. This does not mean that these loans are impossible to acquire, but the requirements imposed by the lender tend to be somewhat different. Here are some examples of typical requirements for a low-doc home loan:

Bad Credit – Nothing Doing

* Borrowers that come to lenders with poor credit histories are going to have an extremely hard time securing a low-doc loan. Loan approvals usually have a very low threshold for defaults on your credit history. They must be both few in number and small in volume. For most lenders a limit of no more than two defaults of less than $500 dollars is typical.

Equity or Deposit?

* You’ll need to provide increased security in the form of a greater amount of equity than with a conventional home loan. Standard equity requirements for a low-doc home loan are around 20 percent, although some lenders may require an even higher amount.

Do You Have an ABN?

* Low-doc home loan candidates will need to demonstrate that they’ve been through the process of registering for an ABN within a certain time frame.

How do You Verify Your Income?21

* Without any form of proof of income, lenders will require you to fill out an income declaration form.

Accountants Letter

* Most lenders offering low-doc home loans look for risk mitigation in the form of a letter from an accountant which confirms your ability to repay the loan.

Show Bank Statements

* Many low-doc lenders will want to examine bank account statements showing your incoming cash flow as a form of income verification.

BAS Statements

* Other lenders will want to verify your income by seeing business activity statements (BAS) from your ATO portal. Different lenders will base your borrowing capacity on different percentages of your total turnover, with 30 to 40 percent being a common level.

Lenders Mortgage Insurance

* Mortgage insurance is extremely common on low-doc home loans. Some lenders may offer to meet some of the costs of insuring your mortgage in this way.

Banks and Non-Conforming Lenders

* The lenders that handle most low-doc home loans are banks and non-conforming lenders.

Interest rates on low-doc home loans are generally higher across the board than those used on standard variable rate loans (but not always). Lately, some lenders have started to bring interest rates on low-doc loans and variable loans closer together. There are still significant differences in the ways the two types of loans work. Examples include:

No Documented Proof of Income

* Low-doc home loans, unlike standard loans, do not require proof of income or proof of tax returns.

Self Certification May be Accepted

* Some borrowers still use the self-certification process for low-doc home loans. This requires you to make a declaration confirming your ability to repay the loan. Today most lenders have additional requirements beyond this.

Exclusively for the Self Employed

* Low-doc home loans are typically used by those who are self-employed.

Investigate all of your financing options carefully before you apply for a low-doc home loan. Make sure you have picked out a financial product that meets your needs and a lender that will serve you reliably.

If you need help with all of this, seek out an experienced responsible mortgage broker.

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