No doc home loans
'No doc' home loans refer to a type of loan that requires no documentation to gain approval from the lender. For example, someone who is self-employed or works on a contract basis and has limited proof of income might find themselves with little or no appropriate documentation to apply for a home loan.
Some financial institutions will often refuse to lend to customers with low or no documentation as they are deemed to be ‘high-risk’. Fortunately however, some lenders specialise in this type of loan, providing viable options for anyone in this situation. It is often a requirement of these specialist lenders that an ABN is provided as proof of a registered business that the borrower owns.
As it is an increased risk for these lenders to take on customers who have no proof of income, you might be asked for a large deposit. It’s also likely you’ll be charged a higher interest rate offset this risk.
Low doc home loans
Low doc home loans are similar to no doc home loans except they do require people to provide some level of documentation before their home loan will be approved. Like the no doc home loan, customers who borrow money using this option will be considered high-risk borrowers as they will have limited proof of income.
As such, these loans generally charge higher interest rates and require larger deposits much like no doc loans. In some cases a lender may also require that the loan is secured against an asset of the borrower’s for extra security. This may be a property that they already own or a vehicle that the bank would repossess in the event that the mortgage repayments could not be made.
Choosing a no doc home loan
When choosing a home loan there are several important factors to consider. The interest rate offered by the lender should be taken into consideration as a high interest rate can add thousands to your loan that wouldn’t otherwise have to pay. As no doc home loans traditionally have high interest rates it will take some research of the market to find the best deal.
Aside from the interest rate, it is important to look at the other fees and expenses associated with the no doc home loan you are considering. An easy way of doing this is to look at the comparison rate of the home loan as this will give you a better idea of the overall cost of the loan inclusive of the interest rate and some fees.
Before committing to a home loan, it’s also important to find out what features are offered by the lender. For example, some loans offer a redraw or offset facility that may help reduce the amount of interest you pay over time.