Low doc High Cost: Be Careful of Low-doc Home Loans
Low doc home loans, that have been of a particular interest to contractors and the self employed, have come at a high cost despite them allowing these home buyers to buy a home of their own, a dream that had been long out of their reach.
If you happen to be one of these people who want to buy your own home but find you receive continual rejections from lenders because you can’t satisfy their requirements regarding sufficient documentation to prove your income, assets and liabilities, you can often obtain a low doc home loan by simply making a statutory declaration regarding your earnings and, more recently, supply copies of your business activity statement (BAS).
Further low doc loan requirements.
Other special requirements you may find you will have to satisfy to obtain a low doc, high cost home loan are:
- You may have to accept a loan with a shorter term, such as 12 months. In this case at the end of the 12 months you would have to take out another loan along with all the relevant costs of doing so.
- Put up additional security such as your car or valuables etc.
- Pay an out of proportion higher deposit than would otherwise be required.
- Take out a lenders mortgage insurance (LMI) ( to protect the lender, not yourself).
- Pay a ‘risk fee’ over and above other additional fees and charges.
- Accept a higher than normal interest rate.
Many lenders have marketed their low doc home loans quite aggressively because of the higher returns they can demand. As a result many people with a bad credit history, casual low paid workers and self employed with unsound regular earnings have been attracted and obtained the loan despite the risk involved, often with dire consequences.
As a result many lenders offering a low doc home loan to their customers have done so on the basis of their ability to recoup any money owed should the home buyer default, rather than worry too much about the mortgagees ability to repay or even the ability to afford the home loan in the first place.
You may still be liable even after being sold up.
The maximum amount of money loaned to a home loan applicant for a low doc home loan seldom exceeds 80 per cent, most hover around 60 per cent and even with this considerable restriction being imposed they may still require you to take out a lenders mortgage insurance (LMI). The cost of the LMI is usually added to the amount of money loaned as a lump sum payment. If you do happen to default and the LMI is called on to make up any shortfall between the price obtained for the home and the amount of money still owing to the lender. The LMI money will pay the lender out but you may still be required to make up the money now owing to the LMI insurer.
It is getting harder to find a lender who will offer you a low doc home loan and many people in the housing industry believe that it will become harder as the years go on. Some even feel that in time they will be discontinued, mainly because of the considerable discrimination they exhibit.
If you wish to learn more about a low doc home loan and the dangers that are involved you can contact Home Loan Finder here.
Related posts:
- No Closing Cost Refinance
- NAB Economic Cost
- No Doc Home Loans
- No Deposit Home Loans
- Home Loans for the Self Employed – Full Doc & Low Doc Home Loan Requirements
- What Are Low-doc Loans
- No Income Verification Home Loans
- What is the Real Cost of Buying a Property?
- 100% Home Loans
- 85% Home Loans – Is This For You?
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