Thinking about buying a property and taking out a mortgage is an exciting step. Looking for your home should be an exciting time, whether you’re looking for an investment property, apartment, townhouse or single-family home that will last you through the years.
Of course, the first step to buying your own property is to get pre-approved for your mortgage so you know in advance how much money you can borrow and what you can afford in the real estate market. There are various options available to you when applying for a home loan, one of which is a low doc loan. Let’s take a look at what a cheap documentary loan is and whether it’s right for you and your circumstances.
What is a low doc loan?
A low documentation loan or low doc loan is simply a mortgage that can be taken out with different documentation than a full documentation or full document loan. Let’s face it, not everyone is in the same boat when it comes to income and the type of salary we earn.
There are so many variations from self-employed to freelancer and everything in between, which can make it difficult to apply for a loan with full documentation. If you don’t know when your next paycheck will arrive, it’s much harder to prove that you’re a reliable lender who can make your repayments on time each month. Luckily, you have the opportunity to apply for a cheap document loan.
So what is a low doc loan? These loans are specifically designed for those who do not fall into the traditional worker category in terms of their employment status. Many people mistakenly believe that “low credit” means you don’t need to provide nearly as much evidence of your credit. However, this is not the case at all. It involves providing various documents that prove your income. Here are a few different options you can take when choosing a low doc loan.
Self-employed people and sole proprietors
The most important thing is that your financial history is up to date. Instead of providing pay stubs, you can provide a lender with the last two personal and business years Tax returns to view your income. These amounts help the lender determine how much you can borrow.
Self-certification
Some lenders even allow you to report your income yourself. This means that you will have to sign a certificate stating that your income can meet your home loan requirements. You will likely be asked to provide additional information such as ABN, employment history and BAS.
Non-Conforming Home Loans
If you have a poor credit history, you should consider a non-conforming home loan. Of course, the downside to these loans is that they often come with a higher interest rate, meaning you end up paying a lot more over time.
Advantages and disadvantages of a low doc loan
So what exactly are the pros and cons of a low doc loan?
Advantages:
- Easy application for self-employed people and others who don’t work in a traditional industry
- Alternative to tax returns as a form of income
- A great loan option that allows you to borrow the amount you can afford to pay back.
Disadvantages:
- Often a higher interest rate.
- You need to shop around for lenders as not all of them offer.
Taking out a low doc loan
Now that you know what a low interest doc loan is, you need to ask yourself if it is right for you. Not all lenders are open to a low document loan, so you may need to shop around to find a loan that’s right for you before applying. If you’re in an unconventional industry, a low-interest mortgage could be just what you need to borrow the money to buy your home. Before applying for a loan, it is important to make sure all of your finances are current and accurate so that you know how much you will earn over a two-year period and can provide evidence to a potential lender. Low doc loans used to require less documentation, but recently they have changed and simply require different documentation.
Getting the right help
If you’re not entirely sure where you fall or what solution is best for your situation, reach out to the team ALC commercial a call today. We can look at your personal history and give you the best way to apply for your first home loan to ensure you can borrow the right amount of money based on your income. Before you know it, you’ll be looking for your first home or investment property.
