Availing loans from the financial institutions involves lots of paperwork and hassles that requires considerable amount of the time of the applicant. Therefore, most of the needy and those possessing inadequate documents for the funding process are left unattended in the due course.However, a new financial product is out in the market that solves the purpose for such candidates in the name of low doc loans. They have become very popular over the past few years. According to a rough estimate by the industry, low doc house loans constitute about 10% of all the mortgage loans written.
Loan doc loans or low documentation loans are specially designed for the people who are generally unemployed and experience problem in getting together the required documents to avail a tradition loans.
The best feature of the low doc loan is that the borrower gains access to a range of loan features and options that were previously unheard of or unavailable. There is an increasing range of low doc products in the market where lenders offer such loans with the choice of fixed or variable interest rates.
These financial products are considered to be the most hassle free and quickest way of availing funds as per the requirements.
Though there are some conditions attached with low doc loans in Australia but the pros attached with them outnumber the cons easily.
Types of low doc loans:
- Self declared: It is the most sought out product in the segment of low doc loans where the applicant avails loans just with a self-signed declaration of income statement.
- Account statement: This type of loan is similar to the traditional loan in the market and requires more documentation than the self declared loans.
- Asset lend: This is the most hassle free loan product that requires no signed declaration from the applicant and are lent on the basis of value of existing property of the applicant.
The procedure of loan disbursement works on the basis of self-verification method. Under this method the applicant is required to submit details of his active income sources to the lenders. The process doesn’t require any major documentation troubles unlike in the case of traditional loans.
Traditionally, low doc loans were issued at higher interest rates compared to regular loans in the market but recently the rate of issuance for these loans have also been reduced in the wake of huge demand.
How do low doc loans score over standard loans from the banking institutions?
- Low doc loans do not require traditional proof of income such as company financials or tax returns and the declaration through self-certification is valid.
- They are highly lucrative and advantageous for self-employed and low income groups who may have difficulty in writing off their expenses or reinvesting profits into a business.
However, borrowers must make it a point to satisfy three mandatory requirements before applying for these loans namely:
- Self-certification of an active income source
- Self-employment status
- Clean credit history and clean repayment record for the past acquired funds