In today’s day and age your credit rating will affect many aspects of your life. People who suffer from a poor credit rating will often feel the effects when they are applying for loans. Lenders look at your credit rating as the likeliness that you will repay the loan. On the flip side of things, having a good credit rating has many perks and advantages. You can get lower interest rates, faster approval, and even better customer service. One particular advantage that good credit ratings offer is the ability to get low doc loans.
Like the name suggest, a low doc loan requires you to show less documentation than traditional full documented loans. Most traditional loans will require you to show your W-2s, tax returns, bank statements, pay stubs, list of your creditors and any legal documents relating to your financial life. These loans are quite difficult to apply for because of all the information that is required for the loan. With no doc loans, the better your credit rating is the less documentation that you will need to show for the loan. This being said, lenders will still want to see your tax returns for the past couple of years and bank statements when you are applying for these loans.
The perfect candidates for low/no doc loans are people who are self-employed. Most people who are self-employed have a difficult time applying for loans because of all the difficulty it can be proving their income. Low doc loans allow people with a good credit history to get loan approval without going through the process of having to provide paper work to prove your income. In the loan application you can simply state how much you are making.
Before the mortgage crisis, no doc loans were often offered to people with a bad credit rating. This coupled with no down payment loans, led to many borrowers foreclosing on their home. Fortunately lenders have since changed the criterion for the loan approval. No longer will you get approval for these loans if you have a bad credit rating.
Besides credit rating, lenders also look at the borrower’s debt to income ratio when considering the loan applications. The debt to income ratio is considered to be a good factor to determine whether or not someone can afford to repay their loans. The higher the ratio is the worse off a person is financially. If you are applying for low doc loans you should ensure that your debt to income is lower than 45% or it will be difficult to get the loan approved.
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