Posts Tagged "bad credit"

Low Doc Loans – Excellent Home Solution That Can Benefit Many Australians

Tired of having to put all that Paperwork Together?

In general, obtaining a home mortgage involves tons of paperwork being put together by the applicant.  Then every aspect of the individual’s financial situation is placed under the microscope.  Applicants with steady jobs are the ones that always do the best with a traditional lender. Professional investors, individuals on a pension, self employed individuals and anybody else who has an unusual financial position or an irregular income has a tendency to not be able to meet the bank’s criteria to qualify for a loan.

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Low-Doc mortgages are also referred to as non-conforming loans at times. That is due to fact that they are designed to help applicants who don’t meet traditional lenders’ borrowing criteria.  However, on the other hand, this is not entirely accurate as non-conforming loans are aimed more at credit impaired borrowers.  A good credit rating is required by a low doc loan, so they aren’t exactly the same thing. Nonetheless if you need help with this one check with your home loan broker who can help you to get an approval for home loan you seek within a shorter period of time.

How Willing are Lenders?

The low-doc mortgage approval value in Australia is increasing despite the fact that total housing loan approval values in some areas have been flat overall. So although low-doc loans accounted for only an estimated 5 percent of total outstanding loans, this share has been increasing.  Currently, these loans make up an estimated 10 percent of the overall new home loans.

This market’s rapid growth has taken place at the same time that increased competition has been occurring.  Low-doc loans were initially marketed by just specialist non-bank lenders.  However, over the past few years, mainstream lenders have gotten into this market.  In particular, some of the smaller banks have been targeting this segment of the market.  On the other hand, major banks were not as fast to get into this market but recently have started to advertise low doc products more actively.

Low Doc Loans are Most Commonly Used by the Following Individuals:

– Self-employed entrepreneurs

– Small business owners

– Contractor workers

– Property investors who have dozens of properties

– Casual or part time Short-term employed

– Individuals who don’t have their recent tax returns

– Casual seasonal workers

property-investment-mistakes-1It’s Not All a Piece of Cake

Low Doc loans make it possible for individuals whose financial positions don’t meet the traditional lender’s qualifying criteria to finance homes that they can afford to pay for.

When a Low Doc mortgage is applied for, the lender might still ask questions about your income as well as your liabilities and assets.  Your credit history will also be checked.

Unfortunately, a majority of Australian lenders won’t consider offering Bad Credit Low Doc home loans.  Frequently a letter from an applicant’s account is required on a low doc loan in order to verify the income stated on the mortgage application.  No financial statements or tax returns are required.

The Downside of Low Doc Loans

The lending market perceives low doc loans as being higher risk compared to full document mortgages.

One thing lenders really don’t like is the risk.  The higher the risk is perceived to be, the higher the interest rate is likely to be for the borrower.  As a result, Low Doc borrowers have a tendency to incur higher interest rates compared to full documentation loans obtained from traditional borrowers.

Nonetheless They can Still be a Great Opportunity for Some

In addition, the riskier the loan is perceived to be, the less Loan-to-Value Ratio a lender will be willing to advance.  Although the Australian loan market does offer first home buyers home loans that are up to 99% of the property’s value -on Low Doc loans this is not available.  In general, a majority of Low Doc home loans don’t go past 80% of a property’s value. In some lender instances, even lower

However, Low Doc mortgages still provide many Australians with a great opportunity for either purchasing a home, or build an entire real-estate empire.  It is almost impossible to accomplish the latter with a full doc mortgage.  Many start out being full documentation applicants.  However, those who want to expand their real-estate investment portfolios will eventually need to seek out financing via the non-conforming loan market.

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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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