Is a Low Doc Loan and a Non Conforming Loan the same thing?
Non conforming home loans have become quite popular in Australia. These loans are offered by non-conforming lenders or those who are not associated with the banks. Although there are some borrowers who may feel that low doc loans and non conforming home loans are the same but the truth is that there is a thin line of difference. Both types of home loans are being offered by non-conforming lenders and both loans don’t require proof of income but the major difference lies in the segmentation of borrowers with credit history problems. Low Doc loans are offered to people who have a good credit history while non-conforming home loans are like unsecured loans that are offered to people with a credit history problem.
Non-conforming home loans are basically mortgages that don’t conform to the lender’s standard underwriting criteria. An applicant who has a poor credit history or who has not been in employment for long enough to show a valid proof of income can get non-conforming home loans. Non-conforming home loans can also exceed 90% of the mortgage/security value. Lastly, the interest rate in a non-conforming loan is dependent on the how bad the credit history of the borrower is.
The non-conforming home loan market in Australia is a $10 billion market that is rapidly growing and the rate of growth has been estimated to be 40% per year. The non-conforming home loan market is mostly dominated by players like Non Conforming Loans, Bluestone, Liberty Financial, MA Money, Redzed and Pepper. Another fact of non-conforming home loans is that they tend to generate a delinquency rate that is at least 10 times as compared to premium products or the standard home loans. The interest rate charged in non-conforming loans can also be in double-digits if the loan-to-value ratio is high enough.
A non-conforming home loan will always have a higher interest rate because the risk is much higher for the lenders. Giving a loan to a borrower with a bad credit history is a high risk. If you apply for a non-conforming loan then you need to know that the amount of interest can go up to thousands of dollars during the life of this home loan. Even the repayment conditions imposed by the lenders are quite strict.
So if you are thinking of going for a non-conforming loan then you need to weigh the pros and cons of this loan carefully before taking a decision.