In an ideal world, we would have all the paperwork required. We would have collateral, we would have papers to prove that our credit is in peak condition, and we would also have proof of steady income every month. However, this is not possible all the time. We may be renting instead of owning, we may have skipped on a few bills, or we may be self-employed. Regardless of how well-off we may be, these factors can cause our application for a loan to be rejected. This is why low doc loans are such a convenient option.
A low doc loan is exactly what its name suggests: a loan with little documentation. You will need papers to prove your identity, but also something to show that you do actually have an income. These loans usually have a higher interest rate, since the borrower is perceived as a “risk.” However, they are an excellent solution when every bank seems to turn you down due to your lack of documentation.
When Can You Refinance Low Doc Loans
Lending options would usually differ from lender to lender. Ideally, you will get the best deal if you refinance a low loc loan with a regular loan. In these circumstances, you will simply provide the paperwork that should have been there in the first place, and you will have all the chances of getting a better interest rate.
In less ideal, but still doable and (sometimes) more convenient circumstances, you will refinance using low doc loans. Generally, every lender has their own requirements; however, it boils down to the individual checking the following situations:
- Borrow at most 80% of the value of their property.
- Clear credit history.
- They have a good reason for wanting to take out the loan.
- Provide some kind of proof of their income, such as a bank statement or an accountant’s letter.
- They have made payment on time over the last year.
Depending on the company that you choose, a lot of exceptions will be made. For instance, NSW Mortgage Corp has fairly flexible requirements for low doc loans, and you might be able to reach a convenient agreement even if you don’t fit all the criteria above.
The Purpose of Refinancing
Refinancing with low doc loans can be used for a variety of reasons. They may consolidate debt or change the repayment plan, in the event that the borrower discovers it’s not as easy to pay the money back as they thought.
At the same time, they may be doing it to switch to a better loaning plan with a more attractive interest rate. Low doc as it may be, the chances are that opportunities may arise even more – especially considering how so many people become self-employed lately.
Things That Might Get Your Refinancing Request Rejected
There are many things that might get your request for low doc loans refinancing rejected, some of them including:
You Have a History of being Late on your Payments
Try to imagine this situation: if you gave Joe $10 with the promise that he would give them back next week, would you agree to give him money again if he repaid you several weeks late? You probably wouldn’t, because you gave Joe the money on the assumption that you would have that money back shortly – and not having it threw your budget into chaos.
The same thing goes for banks. While some exceptions are made with low doc loans, they would have to be out of their mind to give money to someone who can’t stay true to their promise.
You were not Honest about your Plan
For your request for a refinance to be accepted, you need to be completely honest about why you need it and how you believe it will benefit you. For instance, if the funds you save on refinancing can be used to make your business grow, then you need to tell this to your creditor. Many people make the mistake of thinking that the lender does not care, but in fact, all they want is to be sure that they will get their money back.
You couldn’t Prove your Income
Most people seem to make the mistake of thinking that a low doc loan does not require any paperwork. That, however, is not entirely true; would you lend money to someone unless you knew for certain they had the means to give it back to you?
It doesn’t have to be a pay strip signed by your boss; it can even be a bank statement that shows the money you received over the past few months. As long as they know you have a steady average amount, they should be willing to give you the money.
Refinancing low doc loans may not be as simple as refinancing a traditional loan. However, with an open mind and a good strategy, it can definitely be done.