If you want to use a low-doc loan for property investment, you’ll need to find the right lender and understand what they require of you. Each has a different set of criteria, and breaking down how they’ll assess your application is key to getting approval.
Understanding low-doc loans
Low-doc loans are designed to help borrowers without the standard set of documentation used by lenders to assess how much you they can afford to repay. They’re often used by self-employed people – such as full-time property investors – who don’t have payslips from an employer.
However, with financial regulation having been under the spotlight for some time now, increasing low-doc loans are being referred to as alt-doc. Lenders are no longer allowed to agree a loan without checking that the borrower can truly afford it. What this means in practice, is that borrowers still need to provide a significant amount of evidence of income, but via an alternative set of paperwork.
Borrowers considering a low-doc loan should be aware that lenders sometimes apply higher interest rates or ask for larger deposits. Lenders do this because low-doc applicants are considered a higher risk, and they want to ensure they minimise their losses should the borrower default.
Low-doc loans and property investment
Aside from the flexibility in terms of documentation, low-doc loans also work very well for property investors who already have assets that provide security. Lots of property investors have their own home, or other substantial assets already, and banks may be willing to accept these as a form of collateral should the borrower have trouble repaying.
That said, for first-time investors, lenders may want to see that you know what you’re doing and are likely to make money from your new business activities. Some banks want investors who’ve been in business for a couple of years and can show they’ve got relevant experience. So, as a first-time investor, having a water-tight business plan could make all the difference. Make sure you show you’ve done your research with regards to property prices and rental yield, as well as other costs you can expect to incur.
You should also be aware, depending on your future investment plans, that not all lenders allow you to borrow in a company name. This means you’ll be taking out future loans as an individual, as opposed to a business entity, so it’s worth asking your lender whether they have any restrictions or preferences you should be aware of.
Finding the right low-doc loan for first-time property investment
Given every lender has their own set of rules and regulations, it’s worth partnering with a reputable mortgage broker as you move into the world of property investment. They’ll know which lenders suits your unique circumstances, and be there to support you from start to finish.
Contact Red Rock Mortgages to speak to one our experts and ensure you get the right loan for your investment.