Can somebody please tell me the disadvantages of Lo Doc Loans. My broker seems to think it only adds a little bit to the interest rate (0.34%). I do not need it currently, as the bank is working on my 04/05 figures (I am self employed), but know that my financials for 05/06 do not stack up to their criteria because I was persuing other issues and the business was only breaking even.[xmas]
Disadvantages over normal loans are generally higher rates and higher fees – especially exit fees. But the major disadvantage is that most low doc loans are mortgage insured. This means restrictions on property type, location and maximum loan amounts and overall maximum lending.
And to add to this, the ATO could audit you or your bank and assess you on the income declared.
One of my clients recently had problems with the child support agency. He wasn’t paying the correct child support, and the agency did a CRAA check, then went to the lender where he did his last loan, got a copy of the declaration and started asking questions – ie why do you say you earn much more here than you tell us?
Terryw
Discover Home Loans
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry is right the traditional Lodoc loan was perceived to be more expensive than a full documentated loan but often the rates can be negotiated accordingly and many clients end up paying a lot less.
LMI is usually payable where the loan is > 60% LVR (although in saying this one ledner we deal with goes to 76% without LMI) and is either charged to the client or paid for by the lender and in some way factored into the deal. (DEF or exit penalty, higher interest rate etc etc).
If you are unable to produce figures for the current year but feel you can service a new loan you would be better off to either go for a NODOC loan or alternatively a Lodoc loan without LMI (usually 76%).
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
Thanks Guys – Much Appreciated
What are the differences between lodoc and nodoc loans? How do they exactly work?
A Nodoc loan requires no proof of income or does it require the borrower to insert a annual income figure on the application to show that he can service the loan.
In many cases there are no requirements to declare his Assets or Liabilities either.
A lodoc loan in most cases requires a figure to be shown on the application and the lender will take this figure as evidence of income. In some cases all that is required is a decalration confirming that the borrower can afford the monthly repayments of XYZ.
There are a view other slight variations between the 2 loans depending on the various lenders.
Hope this helps.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
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