Looking into buying a property and taking out a mortgage is an exciting step. Going on the hunt for your home should be an exciting time, whether you are on the hunt for an investment property, an apartment, a town house, or a family home that will see you through the years.
Of course, the first step to buying your own property is getting pre-approval on your mortgage so you know ahead of time how much money you can borrow and what you can afford in the property market. There are a few different options available to you when it comes to applying for a home loan, one of these is a low doc loan. Let’s take a look at what is a low doc loan and whether it is right for you and your circumstances.
What Is A Low Doc Loan?
A low documentation loan, or low doc loan, is quite simply a mortgage that can be taken out using different documentation to that required of a full documentation, or full doc, 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 the self-employed to the freelancer and everything in-between, which can make applying for a full documentation loan difficult. When you don’t know when your next paycheque is coming in, it is much harder to prove you are a reliable borrow who can make their repayments on time each month. Thankfully, there is an option available to you in the form of a low doc loan.
So, what is a low doc loan? These loans are specially designed for those who don’t fall into the traditional salaried category when it comes to employment status. Many mistakenly believe that ‘low doc’ means you don’t have to provide nearly as much evidence for your loan, however, this isn’t the case at all. It is a matter of providing different documentation that proves your income. Here are a few different avenues you can take when choosing a low doc loan.
Self-employed and Sole Traders
The most important thing is that your financial history is up-to-date. Instead of showing pay slips, you can show a lender the past two years of personal and business tax returns to show your income. Based on these amounts, the lender can work out how much you are eligible to borrow.
Self-certification
Some lenders actually allow you to self-certify your income, which means signing a certificate to say your income can meet your home loan requirements. With this, you will likely be asked to supply extra information such as ABN, employment history and a BAS.
Non-conforming Home Loans
In the event you have a bad credit history, you may want to look into a non-conforming home loan. Of course, the disadvantage of these loans is that they often come with a higher interest rate, so you end up paying a lot more over time.
Pros And Cons Of A Low Doc Loan
So what exactly are the advantages and disadvantages of a low doc loan?
Pros:
- Easy to apply for self-employed and others not in a traditional line of work
- Alternative to tax return as form of income
- A great loan option that allow you to borrow the amount you can afford to repay.
Cons:
- Often a higher interest rate.
- Have to shop around for lenders as not all of them offer these.
Taking Out A Low Doc Loan
Now you know what is a low doc loan, you need to ask whether it is right for you. Not all lenders are open to a low doc loan, so you may need to shop around to find one that works for you before applying. If you are in an untraditional line of work, then a low doc mortgage could be exactly what you need to allow you to borrow the money to buy your home. Before applying for one, it is important to ensure all your finances are up-to-date and correct, so you know how much you are earning over a two-year period and can provide evidence to a potential lender. While once upon a time low doc loans required less documentation, they have changed in recent times and simply require different documentation.
Getting The Right Help
If you aren’t quite sure where you fall or what the best solution is for your circumstances, then give the team at ALC Commercial a call today. We can look at your personal history and share the best method of applying for your first home loan, to ensure you can take out the right amount of money based on your income. Before you know it, you will be off shopping for that first home or investment property.
