Homeloanexperts.com.au – Low Doc Loans – Are They Gone Forever?
Low doc loans are a type of home loan where you are not required to prove your income to the lender.
What is a low doc loan?
Low doc loans are a type of home loan where you are not required to prove your income to the lender. Instead of providing tax returns, financials or other documents, all you have to do is sign an income declaration confirming how much you earn. The bank will then take your word for it and assess your loan on that basis.
That sounds risky!
Actually it isn’t as risky to the lenders as it sounds. Usually the banks only lend 80% LVR (Loan to value ratio) which is 80% of the value of your property. In the event that anything does go wrong, they can usually sell the security for the loan and will not lose any of their capital.
Did the credit crisis wipe out low doc loans?
Funnily enough the credit crisis itself hasn’t changed the availability of these loans. It is the expected recession / depression that caused lenders to change their guidelines. This is because they are almost exclusively marketed to self employed borrowers. Small businesses are usually the first to suffer during a recession. Banks scrambled to limit their exposure to small business borrowers by changing the rules on their low doc loans.
So how have the rules changes?
Banks still approve lo doc loans, however their credit policies are far tighter than they were in early 2008 before the credit crisis really hit hard. As a general rule most banks have limited loans to 60% LVR instead of 80% LVR, require Business Activity Statements (BAS) to support the declared income or have refused risky refinance applications from sub-prime lenders.
If I need a BAS statement then doesn’t that defeat the purpose?
Yes! If you have to provide a BAS statement to prove your income, then it isn’t really a lo doc loan! This type of loan is sort of half way between a traditional low doc loan and a normal home loan. There are still some lenders that offer low doc loans with no BAS statements however they are relatively rate. One of two lenders can still lend 80% with no BAS.
About the Author: Otto is a Mortgage Broker that has specialized in mortgage finance for over 6 years. His business The Home Loan Experts is one of Australia’s leading mortgage broking firms. Article Source: http://EzineArticles.com/?expert=Otto_Dargan
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The review "Homeloanexperts.com.au – Low Doc Loans – Are They Gone Forever?" was last updated on 01/7/09.
we went to a mortgage broker here in perth and they talked us into signing in for a low doc house loan. Later when we went to refinance with BankWest, the mortgage consultant couldn’t believe that we were on a low doc loan. She said, “I can’t believe he did it to you” (the broker). Apparently, finance brokers get larger kickbacks from low docs.
I heard that low doc loans no longer available, or require a lot of documentation now, – all because this financial systems crash..
Low doc loans are still alive and well. Especially useful for underemployed people who don’t yet have financial to support their loan application.