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As low doc loans are considered higher risk loans by most lenders, the following home loan poses several disadvantages, including:
Requires a higher deposit – Because borrowers who require a low doc loan are perceived as a higher risk, you may be asked to pay a considerable amount of money down. This can be a lot of money to come up with, especially if your income fluctuates.
The low doc interest rates are higher than traditional loans – Again, since low doc home loans are seen as riskier, offered interest rates are usually higher. This is an important aspect to remember since most people who choose these types of loans are people with an unstable source of income.
Can be subject to additional fees – Smaller lenders sometimes attach additional fees to their low doc loans. These fees can include overhead fees, or additional applications and processing fees. This is yet another added expense borrowers may have to face when choosing this type of loan.