Low Doc Home Loan

The Difference Between a Full Doc and a Low Doc Home Loan? 

When reviewing your Low Doc Home Loan application, lenders would like to ensure you can happily afford the loan you have applied for. So, lenders need that you meet specific fitness criteria to succeed in a home loan. 

In addition to giving your basic documents, you must also share your earnings and property details to assist the lender verify the servicing capacity of your loan. In most cases, a minimum deposit of 20% of the asset’s value is also paid as part of the loan criteria. This value is typically suitable to avoid the charge of Lender Mortgage Insurance for most borrowers. 

Although those criteria for qualifying for a mortgage loan look appealing and straightforward, they can present some complications whether you don’t apt a lender’s standard borrower profile. For instance, mortgage lenders and banks often choose to work with borrowers who have had a stable job for a significant period of time. 

So, although you don’t have high revenue, your employment history is steady, which provides the lender more confidence that you can pay your mortgage payments in the near future. 

Several lenders may provide Low Doc Home Loans for such borrowers, however, these providers may come with higher interest rates to aid offset the increased risk to the lender. 

Difference between a Full Doc and a Low Doc Home Loan

  1. Prove Your Income

The chief difference between a Low Doc Loan and a Full Doc Loan is the documentation needed by the lender to verify your earnings as well as the ability to service the loan. 

  1. Paperwork

A Low Doc Home Loan generally needs you to deliver less documentation to verify your earnings and properties than a full doc mortgage loan. It is used primarily by self-employed and small business owners and can be presented at higher interest rates than a full doc loan. 

  1. Verification Method

To prove your earnings when you apply for a standard mortgage loan, lenders typically want you to deliver your last few months’ pay stubs, bank statements, as well as two years’ worth of tax returns. But a Low Doc Loan uses a self-verification method to verify your earnings details in the form of a signed Borrower Income Statement indicating your usual earnings. 

  1. Others

In addition to the documentation needed to show your earnings and properties, there may be some other differences between a full doc loan and a low doc loan, such as: 

  1. Borrowers with low documentation are usually needed to provide higher deposits, in some cases equal to 40%.
  2. Several lenders may charge a greater interest rate to applicants with low documentation as they take on more risk by accepting non-standard documentation for earnings verification.
  3. In a few cases, lenders can place restrictions on the ZIP codes where you can buy a home with a Low Doc Home Loan, such as in remote areas.

Conclusion 

It is difficult to obtain a traditional mortgage loan as an independent borrower without the standard revenue documentation needed to prove your fiscal position. When you have involved in these situations, a Low Doc Home Loan can aid you acquire your foot on the assets ladder with minimal documentation as well as a self-declaration indicating your regular earnings.