It is possible to obtain a low doc home loan with poor credit. Of course, it does present a few more headaches to the lender. Often, it means a change to interest rates since you are considered to be a high-risk borrower. Being a high-risk borrower doesn’t spell the end of your property dreams. It does mean lenders take a closer look at you, however.
So, what do you need to know about poor credit and low doc loans?
How Do Lenders Determine High-Risk Borrowers
Low doc loans are popular because they offer borrowers an alternative paperwork source. Instead of handing over pay slips, you can show a business activity statement (along with other documents). However, your credit will impact the type of loan you get – even a low doc loan. Lenders look at your credit score and history and determine the risk to them. For example, someone who has defaulted on a loan would send up a big warning to the lender, rather than someone who has never defaulted.
Work on Your Credit to Improve Your Chances of a Better Loan
It’s important to understand that credit does impact almost every area of life and can cause you to stumble at times. Whether you’re looking for a low doc home loan or otherwise, it’s important to work on your credit. This gives you a better chance of getting a loan with a reasonable interest rate. It will also be good for you in general. Fortunately, there are lots of ways to clear up and improve your credit. For instance, paying off old debts could be a great starting point.
You’ll See Higher Interest Rates
Low doc loans can be obtained even when your credit is poor. It does mean you will face higher rates of interest. This is typical when you have poor credit; even standard loans will have higher interest rates. It’s down to your credit history and score. For instance, defaulting on several loans in the past or having lots of outstanding debts can be a red flag for lenders. So, they often set a larger interest rate to compensate in case you default. Visit https://www.ncocreditservices.com/what-are-the-benefits-of-a-low-doc-loan/ to read about What are the Benefits of a Low Doc Loan?
You have to remember that it’s about mitigating their risk as the lender.
It’s Important to Have a Large Deposit Available
Standard mortgage loans often require you to have at least 10% (sometimes 5%) of the total property price to act as a deposit. This amount, however, changes when you look to a low doc home loan. In most cases, lenders will need you to have a larger deposit. For instance, 20%; however, this number can increase, depending on your credit. Some lenders will deem you a high-risk borrower and will want you to have a deposit of around 30 or 40%.
It also depends on the value of the property, how much you need to borrow, and the duration of the loan. You can also read about Queensland housing finance loans by visiting https://www.qld.gov.au/housing/buying-owning-home/financial-help-concessions/qld-housing-finance-loan
Credit Doesn’t Need to Stop You Getting a Loan
Poor credit is a nightmare because it can impact many areas of your life, even loans. However, low document loans aren’t entirely out of your reach just because of poor credit. It isn’t easy, of course, but there are options available to you. That is great news because a lot of borrowers don’t have that option. You may, however, want to clean up your credit and have a good deposit before applying for low doc loans.