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Simple Guide to Low Doc Loans that Banks Won’t Tell You

low doc loans

It is difficult to get your mortgage loans approved when you are self-employed or you’re in the informal job sector. It is because of the unspoken bias against the self-employed as well as new entities and companies experiencing a bad year, or those with seasonal income. Conventional lenders are sceptical about approving their loan applications because they are considered as high-risk borrowers.

While employees in established companies can provide employment records, and established business present income tax returns for the past three years—you may not have the financials to prove your income. Corporations who suffered from losses and new entities may also find it difficult to get a commercial real estate loan approval from conventional lenders. Because of this, you may not qualify for the loans you need—and worst, you may fall prey to loan sharks that charge exorbitant interests and fees.

What is a low doc loan?

A low doc loan requires minimum documentations. You don’t need to provide pay slips, and personal or businesses tax returns. Mainstream lender usually look in to the tax transcripts and personal and business-related income documents to check if you incurred large losses, fluctuating income and lower taxable income.

That’s why the self-employed and the contractors probably know how difficult it can be to get their loans approved. The truth is that even if you want to get those papers done, it is often very difficult to get the necessary documents together to prove your income, especially if you have just started with your business, or if there is no stable cash flow to begin with. Because of this you may want to consider lenders that offer low documentation mortgages. They will simply require you to state your income in the application form and take your word for it; along with minimum requirements you need to submit together with your application.

Who needs low doc loans?

Whether you have a strong credit or not, as long as you don’t have a stable income and you are self-employed, low doc loan may be the best option for you. Those who cannot present the documents that mainstream lenders usually require when granting mortgages can also use this type of loan. Examples of no verification income borrowers include new businesses, contractual employees, seasonal workers and entities with negative taxable income. Even big corporations with larger losses than gains, new immigrants and unemployed individual may not meet the strict requirements of traditional lenders.

Can I access the loans fast?

Yes. Low doc loan has a simple underwriting process. Since it may be the only loan that someone who has limited documents like you can qualify for, you may appreciate the fact that it wouldn’t take long before you can access your cash. Since you are not trying hard to prove your income, the lender will simply review your credit history and check if you meet the lending requirements to make sure you are qualified. Then, the underwriter will assess your credit profile and the residential home appraisal. in a matter of days, the underwriter shall declare that you are clear to close.

Is it costly?

The cost, especially the interest rates depend on the lender’s terms and conditions. While some financing companies may charge exorbitant interest rates because you are a high-risk borrower, there are specialised lenders like Bad Credit Loans that offers reasonable terms. The cost would also depend on the loan term. If you choose a longer loan period, you may have to pay a higher amount. So, it is important to read the terms and conditions of the loan, especially the costs that you would incur over time before you sign the loan agreement.

Do I need to pay large deposits?

Commercial lending institution usually requires a deposit of 25-30 percent, but there are a few lenders that require smaller deposits and others don’t.

When you opt for a low doc home loan, it means you are borrowing against your home’s value.  If you plan on purchasing a new home using this type of loan, you may have to pay a considerable down payment. You may also have lesser access to your equity when refinancing. So, it is important to choose a reputable specialized lender that offers favorable loan terms, like lower deposits, fair interest rates and low closing costs.

Don’t immediately jump at the first ‘no income verification’ lender that comes your way. Remember that there are positives and drawbacks to loans like this. So, even if you cannot prove your assets and income. Look for alternatives and start planning how you can get the most suitable loan product that you can easily repay in a few years.

Can I apply for a second mortgage with low documents?

Property owners and businesses alike, as well as small to middle market real estate investors who have no supporting paperwork to prove good income need a low doc financial product. While you can apply for no income verification loans in the form of personal loans and line of credit to finance short term financing needs, you may want to consider getting a second mortgage. Specialised lenders like Bad Credit Loans offer this type of loan, with minimum income verification requirements at an affordable rate. You can use your home equity to consolidate loans and get cash for your important expenses.