Low Doc Home Loan v Non Conforming Loan
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 loan 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 a Low Doc Home Loan
A Low Doc Home Loan 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 with a declaration of income 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 20% 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.