As a consumer you are undoubtedly confused by the multitude of different home loan products advertised by lenders and brokers. The use of clever marketing tactics may lead you to believe that Low Doc loans and Non Conforming loans are essentially the same – but this is not necessarily true. While both the Low Doc and the Non Conforming products are primarily targeted at the self employed borrowers and borrowers who would not normally meet the traditional lending criteria – there are some specific differences.
Key Features of Low Doc Home Loans
Low Doc as the name suggests is a Home Loan where less financial supporting documentation needs to be provided than with a traditional home loan. Tax returns, Payslips etc are not required. This loan product was developed specifically for persons who are working in their own business and due to work commitments may not have had the opportunity to complete their tax returns as they fall due.
Some lenders will require a letter from the borrower’s accountant to substantiate their income, others are happy with a simple statutory declaration from the borrower.
The lender is prepared to provide a home loan to low doc applicants as long as the applicant has a basically Good Credit rating. In some cases a couple of small paid utility defaults would also be acceptable. Applicants with a recent history of bankruptcy will not qualify.
Borrowers must demonstrate that they have accumulated some deposit towards the purchase (a minimum of 5% deposit is required)
Low doc home loans are now available in Australia for both investment and owner occupied purposes.
The interest rates on the Low Doc home loans may be marginally higher than the full doc products. However this is progressively changing with a number of key players in the Australian Home Loan market offering low doc loans at very competitive rates.
Key Features of Non-Conforming Home Loans
Non Conforming Home Loans cater for borrowers who do not meet the lending criteria of traditional lenders. It could be that a borrower has a history of bad credit (even ex-bankruptcy), does not have steady regular employment, does not have a deposit, is an overseas resident, is retired or a seasonal worker etc.
As a rule, non-conforming product lenders are prepared to allow for a greater risk regarding the particular circumstances of a borrower and will generally charge a greater interest rate to compensate for such risk.
When choosing a loan product, be it a low doc home loan or a non-conforming home loan all borrowers should to be mindful of all the loan features, not just the interest rate charged.
Borrowers should also take into account the available re-draw options on their home loan, account keeping fees, portability of the loan, ability to split the loan, repayment options and much more.
Trying to find a home loan that is right for you may be a difficult process. With the existing credit crunch, it is not surprising that so many people are trying to find these types of loans in Australia that can fit their budget. One of the trends in order to counter rising prices is by acquiring a “no deposit home loan”. This trend was caused mainly by constant high interest rates and housing prices, leaving those with middle income jobs, unable to cope with their mortgage payments.
With the introduction of these loans, this problem was remedied and alleviated. These middle income earners can now afford a loan without breaking the bank, although they may have little in the way of savings.
What is a no deposit home loan?
First of all we have to answer the question of what this type of loan is. Basically it allows a borrower to loan up to 100% of the purchase price of the home while still providing for the entire range of features that your regular home loan offers. This type of loan is ideal for those borrowers who have a steady and large cash flow, but little in the form of savings or equity.
Five tips on making this type of loan.
Here are some tips to find one that is right for you.
First. Make sure that you look at your current economic situation. Your cash flow and how much you can afford to pay. You will have to provide ample proof that you will be able to pay the typically higher interest rates that these loans require. This is why your employment information is important as it can mean approval or disapproval of your loan.
Second. If on your own, your cash flow is insufficient, you can seek help from guarantors who may be your parents or friends, who have a better cash flow than you to help you secure the loan.
Third. Find the home to your liking. Make sure that you indicate the area where your prospective home is located. This is important as not all properties on the market are eligible for these types of loans.
Fourth. Make sure that you go through all the possible options for your no deposit home loan. With the array home loan products, there shall be some options that are better than others, depending on your specific situation. Do not take the first deal that is offered, and go through all possible loans offered to you so that you can make a wise choice.
Fifth. You can consult experts in the field to help you select the which particular loan is right for you.
