Things To Know About Low Doc Property Lending
November 16, 2018
Low doc property lending is when the lender is providing the loan to someone who isn’t qualified for a loan as per the traditional criteria. Hence, carries high risk while taking credit. Since it is a high-risk venture, the low doc property lending also carries high reward for the lenders since low doc loans often carry high-interest rates as compared to other traditional loans.
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| Low Doc Property Lending |
These low doc loans are for the people who don’t have a source of income in a traditional way such as self-employed. Hence, they face difficulty in giving the document that a financial institution will ask for when applying for loans. Due to the lack of proper documents, those applications have more chance of rejection. For example, in Australia, to get a traditional loan, you may need to provide three years’ worth of financial documents in order to be eligible. But, in the case of low doc property loans, you won’t need to provide those documents.
Low doc lenders: Low doc lenders are those people, who have a good deposit, or they have a healthy income, and they are able to provide loans to others, but they don’t have the required paperwork to validate those. Hence, low doc loans are an attractive plan for those lenders who could get a high return via investing in low doc loans. These low doc lenders though have decided to lend in a high-risk category, but that doesn’t mean one doesn’t need to show any document in order to get qualified for the loan.
Requirements: Different lenders will ask different documents depending upon the financial status of the person or on the basis of the business of that person. Hence, for different people, the requirement will also be different. They may ask you for the following things:
• Business activity for no lesser than 12 months
• Bank statements
• Tax returns for up to two years
• Some proof to validate the income
After going through this procedure, if the low doc property lender is satisfied with the application, then he or she will go forward with the process of lending money.
Returns: The low doc property lending has a higher return than that of the traditional lending with the added factor of risk. Since, low doc property lending is a high-risk lending. Hence, there will be high reward depending upon the level of risk. However, at the same time, it could also benefit the borrower in many different ways.
The low doc property lending enables the borrower to buy a property of his or her choice with the loan, which he or she can pay back along with the revenue generated in the business in a monthly premium.
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| Low Doc Property Lending |
People who could get benefited from low doc property loans:
The low doc property loans are for those people, who can’t provide proof of their income opting for home loans. There are also people who have fluctuating income due to which their applications may get rejected in the traditional loans, as they won’t be qualified for it. Hence, among these people, the low doc property loans carry a great significance, as with these loans, they can buy the property they want and pay back the loan via premium.
The low doc property lending also gives benefit to the lenders, as they get higher interest for the risk that they are taking. The loan to value ratio comes to play in this case of low doc property lending. Most lenders will prefer if the loan to value ratio is less than 60%.
Since, the low doc property lending carries a huge amount of risk; the lenders will also put some restrictions or conditions, which the borrower has to comply. If the lender wants, they may provide additional features such as flexible rate of interest, interest-only repayment, etc.
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