Low Doc and Non-Conforming home loans, one sounds weird and the other sounds scary. But in essence, these are two very specific types of mortgages designed for borrowers with certain constraints or concerns which may preclude them from receiving a home loan.

These two types of home loans are very similar, but in order to decide which one suits your circumstances, you need to understand what and who each one was designed for.

Non-Conforming home loan
This type of mortgage was created for the home buyer who does not fit the traditional Australian profile for a standard borrower.

A traditional or standard home loan applicant would be employed by someone or something, have no credit blemishes, have at least twenty percent deposit to put down, preferably be a citizen who resides in Australia and is under the age of fifty-five.

Here is a list of most categories a Non-Conforming borrower belongs to

• Self employed – Or a contractor who is not directly an employee of a company. They require a statement of income from an accountant in order to secure a loan of up to sixty-five percent of the value.
• Variable income – Job shifters or unstable work history within the previous two years.
• Low down payment – Do not have a twenty percent deposit to put down on the home loan.
• Credit impaired – Persons with credit history issues or bankruptcy.
• Security impaired – If the loan is not for standard residential property (mobile home, raw land).
• New residents to Australia – Persons who have not lived in the country for at least five years.
• Mature or older borrowers – Persons close or already have retired.
• Overseas Australians – Do not meet the residency requirements most lenders insist upon.

Generally, a Non-Conforming loan is custom tailored to the specific needs or individual circumstances of the home purchaser that would not qualify for a traditional mortgage.

Many lenders will not approve a home loan to these groups as they are considered high risk and could easily default. Because of this, specialised lenders have propagated which cater to the needs of these categories.

When the borrower has demonstrated over a long period of time that they can timely pay the loan and have established a good credit record, they could be considered for a traditional mortgage if they want to refinance for a better loan rate.

Low Doc home loan
The Low Documentation home loan is relatively new to Australia and is designed solely for the contractor or self employed home purchaser who cannot produce current tax, income or financial paperwork. In today’s uncertain job market, this group is growing in numbers every day.

This type of mortgage will help home loan applicants with irregular income or lack of financial records so long as they have a sufficient amount of equity in another property or assets in other forms. This could be a stocks and bonds, large bank accounts or business ownership.

Often the interest rate for a Low Doc loan is one half percent to one percent higher than the standard loan rates, due to the perceived higher risk of a non-guaranteed income. However, over a period of time with a stable loan repayment history, lenders will often reduce the interest rate.

Here are a few tips when considering a Low Doc loan

• Make sure there are no monthly account fees attached to the note.
• Try making bi-weekly or weekly payments in an effort to pay the mortgage off sooner.
• When your interest rate lowers, keep making the same payment amount anyway.
• Look at several lenders to find the best interest rates and loan-to-valuation ratio (LVR) you can.

Obviously if you are self employed with little cash liquidity and few to no financial records, you need the Low Doc home loan. If your situation is different or if you fit into a different category of borrower, then the Non-Conforming home loan is your best bet to buying the home of your dreams.

Always confer with your mortgage broker to make sure you are choosing the appropriate home loan and are getting the best possible interest rate.