Open Housing Market to First Time Buyers
The down payment options have become more lenient and the alternate credit scores now allow just about anyone to seek a home loan. The low doc loans are back. However, they now come with a clause and that means meeting a certain criteria before you qualify for a low doc loan.
Worried about another housing crisis? Though it might appear so, this is by no means a repetition of the housing crisis which occurred a decade ago.
The number of people signing up for low doc loans was increasing. Then housing got more and more expensive. There were thousands of people who lost their jobs due to inflation and were unable to pay for those loans. This caused a major crash in the housing market.
Now times are better. The economy is doing great and more and more people have jobs. Property value seems to be on the rise and is twice than what it was a few years ago.
In fact several federal housing finance agencies are now providing low doc loans to people with a down payment of only 3%. Some lenders even accept alternate credit scores which make it easier for people to secure loan.
Is it Another Crisis in the Making?
Some experts are quick to point that the housing market is again heading towards a major crash but there are some alternate views as well. According to John Harrell, VP of USAA Bank, the mortgage industry is way different than it was a decade ago.
Alternate Credit Score
Making use of the alternate credit score has allowed more people to qualify for a loan. The model for credit scores is changing. Lenders are now looking at alternate models to determine a person’s credit worthiness.
There is a marked improvement in the lender and borrowers behavior. The lenders make use of less risky practices. Though the loans can still be called low doc, but borrowers are now savvier and are quite big on saving as well.
What exactly is low doc lending?
The first thing you should know is that low doc lending is by no means a no doc lending. Borrowers do have to present themselves with a few documents and undergo scrutiny for certain criteria before they are assigned a loan. This common misconception of low docs meaning no docs needs to be cleared immediately.
These low doc loans are the best possible option there is to people who have an unconventional way of earning. They could be freelancers, contractors or just about anyone who may not have a fixed income. These are people who may otherwise have had no option of securing a loan if traditional credit scores were assigned to them. This is also where alternative credit scoring comes in.
Low doc loans are popular amongst people who may have difficulty in gathering the necessary documentation which they might require for a traditional home loan. It works well for those who are self employed and that amounts to 17.2 % of Australia’s workforce.
The borrowers do need to pass a criteria for things like a good credit history or payment record and should be able to self certify their income.
If you feel you don't have the required documents then low doc loans are a saving grace for many, make sure you get to know whether you qualify for one or not!