Getting a home loan may be a bit challenging for self-employed workers. As there is hardly any proof regarding the actual income, lenders think twice prior to approving their loan request. In that case, low doc home loans can prove to be of immense help.
What is a Low Doc Home Loan?
Low doc home loan refers to a special type of loan that demands a limited number of documents. It is meant for those people who can hardly produce the actual proof about their sources of income. Introduced in the 1990s, these loans are alternates to mainstream lending that often involve a lot of documents and paperwork.
Nowadays, almost every lender offers this special type of loan. There is a small confusion between low doc and no doc home loans. Both are different. The former requires a limited number of proofs while the later requires none.
What are the Documents Required to Apply for a Low Doc Home Loan?
As it is crystal clear from the name, application for low doc home loans requires a low number of documents in comparison to standard home loans. These loans are specifically geared to business owners and self-employed professionals who do not have a steady income to show on papers. Still, mandatory documentation required to get approval include the following:
- A business name that is registered
- Business activities of the previous year
- Up-to-date bank statements
- Decent financial statements
As per the recent rules and regulations, lenders must have some type of income verification prior to approving a low doc home loan. Therefore, until and unless you provide any proof of income, you will hardly get an approval.
How do Low Doc Home Loans Differ?
Unlike standard home loans, a low doc home loandiffers a bit in terms of the following points:
- Rate of interest – Generally, a low doc home loan is devoid of a competitive rate of interest in comparison to regular home loans. But they are inclusive of the high rate of interest for compensating lenders. Some of the options to choose include split, variable and fixed rate of interest.
- Fee – The standard fee for home loans is higher than normal loans. To some extent, it may vary from one lender to the other. Some lenders may charge a low deposit fee against the added risks in the association.
- Features – Features of low doc home loans are usually same as standard home loans. Some of the highlighted ones include the facility of making frequent payments, credit options, offset accounts, and many more.
Is there any Restriction at the Time of Approval of Low Doc Home Loans?
A low doc home loan is meant specifically for self-employed people. But borrowers with deposits below a certain percentage may not get approval for low doc home loans. Some borrowers may uplift the minimum percentage. To some extent, it will depend on the fact for how long have you been into the business.
Credit Rating is Another Criteria!
Credit rating of the applicant is also considered prior to approval of a low doc home loan. It is an important factor that helps in determining the likelihood of the borrower. An appreciable credit rating ensures that the applicant will be able to pay back the money borrowed in a hassle-free manner.
Day by day, lenders are tightening the requirements to prevent frequent occurrences of financial issues. Hence, it is becoming mandatory to have a good credit score to obtain low doc home loans successfully.
If you are planning to apply for a low doc loan but not know where to start from, then better start browsing the internet. There you will come across the names of lenders who provide such loans. By comparing credentials and reviews, making the right selection will remain no more a challenge for you. Top lenders will provide competitive rates of interest on the loans, which is the dire need of the hour.