subject: Is There A Low-doc Loan In Your Future? [print this page] Consumers obtaining a low-doc home loan do not need to present to their mortgage broker or lending institution a bunch of separate documents proving what your assets, liabilities and income happen to be. There is still a written application process along with needing to sign a loan agreement. However, you may not be required to provide tax returns, pay slips or other income verification documents that are required when going through a traditional loan process. You will need to sign an income self-verification form where you just state the amount of your income. Although a low-doc loan may help a consumer obtain financing when not qualifying for a traditional home loan, there are several considerations you need to know so you have a good understanding of just what the process entails.
There will be Special Conditions
Obtaining a low-doc loan means you must give up to get. This translates into these possible conditions:
You will more than likely pay a higher interest rate than that accompanying a traditional home loan
You will pay additional fees including what is called a risk charge
You will need mortgage indemnity insurance
May be required to provide additional loan collateral such as a car
Require a larger down payment
May need to accept a short-term (12 month) loan that can be refinanced at term end with additional costs
Why use a Low-Doc Loan?
Long gone are the days when only perfect credit with unblemished work histories commanded a loan approval. Low-doc loans emerged as products marketed to people who may be in a financial position that deemed a greater risk. This presents an opportunity for a consumer who does not typically qualify for a traditional mortgage to consider if the interest and accompanying fees and conditions associated with a low-doc loan are ones that can be handled. The lender, who is looking for the risk fees to be paid up front, will make a decision based on an examination determining if the potential borrower can handle the monthly repayment amount. This is why it is imperative to make sure you present to the lender an accurate assessment of your financial situation regardless the fact you do not need to present income verification documents. Often, when you, the consumer, take on the greater risks by offering a larger down payment and paying the upfront risk fees, the lender is in a better position to recoup the investment through a quick sale of the house in case of default. The larger down payment makes the house an attractive buy since the mortgage obtained should be far less than the value of the home itself.
Its Your Call
A Low-Doc Mortgage can be a valuable financing product for many people who realise that qualification for traditional home loans may be difficult if not impossible. Although you may qualify for one of these products, they can be expensive. Often people with less than stellar credit may qualify for a more traditional loan by adjusting some of the conditions such as down payment but you should consult with a mortgage professional to determine the best possible loan method that can get you qualified.
Once qualified, you can realise the dream of home ownership.
by: David Nalin
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