Low Doc and Non-Conforming Loans
When comparing no doc and non-conforming loans, it is important to remember that there are advantages and disadvantages to both types of loans. Low doc loans are better suited for self-employed customers or unconventional borrowers, as lenders dealing in these types of loan are more likely to have greater flexibility in assessing an application and will work with applicants to ensure that they get approved for the loan.
Self-employed borrowers can choose a low doc loan to purchase an investment property. Self-employed individuals can qualify for this type of loan if they are able to provide their last two years of tax returns and financial statements. However, tax returns are only lodged once a year, so it is very possible that their most recent tax returns are 18 months old! If you are self-employed and want to buy a property, a low doc loan may be a better option.
Before selecting a mortgage lender, do your research on interest rates and loan terms. Contact multiple lenders and banks to compare their rates and terms. You may also want to consult with a mortgage broker, as they specialize in non-conforming loans. Your broker will have more experience and can help you make a better decision. This way, you can save time and effort, while getting the best possible deal.
What Are Low Doc and Non-Conforming Loans?
Another type of Low Doc Loans is the no income verification loan. This type of mortgage does not require borrowers to provide any income documentation. Many lenders offering no doc mortgages are now allowing applicants to state their income without submitting tax returns. This type of mortgage is especially helpful to self-employed borrowers and long-term customers with good credit. However, it is important to remember that low doc loans often have higher interest rates.
Conforming loans are mortgages that meet the guidelines of Fannie Mae and Freddie Mac. In order to get a conforming loan, you must have a low debt-to-income ratio, which is typically 50% or less. But some lenders use 43% as a common threshold figure. Non-conforming loans are outside of the strict guidelines of Fannie Mae and Freddie Mac, and are issued by private lenders. They typically require a higher down payment and stricter underwriting guidelines than conforming loans.
Conforming loans are backed by the government and have a lower risk for lenders. However, these loans often have stricter loan limits, so even those with perfect credit can’t qualify. In addition, most conforming loans have a maximum number of mortgages on borrowers’ credit records, so they are not ideal for prospective homebuyers with bad credit. Also, conforming loans have a limit of four mortgages, meaning that real estate investors who want to take on multiple properties must switch to private lenders. These lenders can offer a variety of loan types and charge higher interest rates.