Applying for a loan and getting it approved is not only a lengthy process but also requires a lot of documentation. Some of the common paperwork involved is related to proof of income in the form of pay slips, tax returns, bank account statements and others. When a mortgage broker or a lender troubles you for such paperwork recognize this as a positive sign. The right paper work will help you get the best mortgage rates for which you are qualified for.
However, there are people who cannot produce all these documents and in such cases, low doc lenders can be extremely helpful.
Why should you apply for a loan with low doc lenders?
There might be many reasons why you as a borrower may not be able to provide the documentation required for acquiring a standard loan. Here are some of the possible reasons:
People who are self-employed and have a low-income record often makes efforts to save taxes and does not file their returns. This can be a detrimental when applying for a loan since such documents are required in standard loan applications.
New owners of businesses are unable to show a history of consistent income. Usually lenders will require a few years’ records for approving the loan.
New employees do not have any employment or income history for consistent past months.
Retired people having investment income.
People who prefers to keep the income details private.
The documentation is too difficult to be found and organize.
You have income or assets which are documented in a way that the specific lender does not accept.
Low doc loan qualification criteria:
Before 2008 getting a loan without proof was possible. However, after the severe financial crisis of year 2008, the Consumer Financial Protection Bureau (CFPB) mandates that every lender must make sure that the borrower has the capability to repay what you are borrowing. However, there are some lenders also known as low doc lenders who allow people to avail loans even if they do not have the conventional documents. However you must qualify for such loans given by low doc lenders:
Your credit score: Your credit core is of prime importance if you want to get low doc loans sanctioned easily.
Your income: Income is another key component and requirement when you want to apply for a loan. Low doc lenders are however less strict about the income factor.
Your assets: When you show proof of assets, the lenders are more convinced about giving you the loan since the chances of repayment are high.
Your equity: Larger down payments will also help convince lenders that the risks incurred are not much high. There is no concept such as free lunch in this world. Since you are not having the ability to prove your repayment competency with the help of valid documents this means that the lenders are at high risks. The lenders are in turn taking a higher risk legitimately. Hence the rate of interest in such loans can be a percent higher than standard loans. You can also expect some inflated processing charges as well charged by low doc lenders owing to the high risks they are taking. The low documentation loans are designed with the intention in helping people who have saved deposits but are self employed and does not possess the proper paperwork. You can borrow as good as around 80%of the property valuation and provide minimal alternative financial statements. It is hence advised that you keep the financial data related to the business updated which can be extremely useful when submitting evidence to low doc lenders for quick loan approvals.
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