If you are in a situation when you would like to borrow money to use in investments or to buy property but you don’t have all the necessary documents, low document loans are something you can consider. Take a look at the basic FAQs about such loans compiled below:
What is a low doc loan?
As the name suggests, a low doc loan is an investment or home loan which is quite similar to regular loans aside from the fact that you don’t have to provide some important documents. Generally, you are required to hand in usual income verification documents such as financial statements, pay slips and tax returns. However, when it comes to a low doc loan, these documents need not be provided. Instead of these, you have to sign a form which will declare your income. It is this income that will be considered when assessing your income for the loan.
How is a low doc loan different from a no doc loan?
Although there is a thin line between a low doc and a no doc loan, the difference must be understood clearly before applying for any one. As mentioned before, with a low doc loan you will not be required to hand in your income verification documents but just declare your income to the lender. However, with most lenders, you will have to provide a detailed statement of your assists and liabilities.
On the other hand, applying for a no doc loan doesn’t require any of these verifications. While the exact requirements for a no doc loan vary from lender to lender, all you need to do is sign an income declaration. The catch with no doc loans is that the interest rates are sky high, going up to 2% to 6% per month. These loans are the territory of wealthy private moneylenders who don’t care about your credit history.
What is LVR and how does it affect me?
Loan to value ratio or LVR is a method used by lenders to understand the risks involved with your loan. They use LVR to determine whether or not the loan should be passed. Low doc money lenders use it to assess any low doc loan application that comes their way. If the LVR is found to be above 80%, the loan is considered to be high risk and it might be hard to find a lender.
Is there anything that I should look out for?
As you must already understand, low doc loans are a high risk for financial institutions and individuals. Hence, there are some restrictions on the type of loans that can be applied for without complete documents. Some possible issues with low doc loans might be sky high interest rates, LMI and large deposit. These are some things that you must find out more about before applying for a low doc loan.
Before applying for a low document loan, make sure that you are aware of the basic facts about them. Due to the high risk of such loans, most financial institutions do not provide them and you might have to look for a private lender.