“ No doc home loans” are loans in which the borrower doesn’t have to present a lot of documentation to qualify. In typical loan situations, applicants must show proof of employment history, financial documentation and credit history. With a no doc home loan, applicants with a high credit score may choose not to divulge specific financial and employment verification records. In exchange for such privacy, they’re willing to pay a higher interest rate.
Home loan applicants who gain their income from under-the-table resources, are self employed, who work part-time or on a contract basis, live off of a commission structure or who don’t get paid with a standard paycheck may also find that a no doc loan structure is the way to go. After all, they might still want to own a home, but don’t have access to regular financial or employment documents. In that instance, paying a higher interest rate is the only way to go.
For those who don’t qualify for no doc loan, or who are still looking to maintain some privacy without having to pay absolutely astronomical fees or interest rates, there is another alternative: the “ low doc home loan.” Low doc loans typically only require a variety of income and tax statements, along with the lender’s credit report and appraisal.
There are three types of low doc and no doc home loans. First, there is the
no-ratio loan, dubbed as such because the lender doesn’t require any debt-to-income ratio information (which is standard for other typically documented loan structures). In fact, the no-ratio loan doesn’t require the borrower to state any income whatsoever. This may be a good alternative for people who are in an unsure financial situation or who are living solely off of investments.
The second type of low doc/no doc home loan is the no income/no asset (NINA) loan. A NINA loan requires the least amount of documentation of all the loans; the borrower need only provide their name, Social Security number and the address of the property they’d like to buy. The lender then conducts a credit check and an appraisal.
Lastly, there is the stated income loan. Just like it sounds, this loan structure requires the applicant to state their income and then provide at least two years of income statements, including W2s, tax returns and sometimes bank statements. Stated income loans might be the best choice for people whose income includes cash, tips, gifts, etc. and where their stated income for tax purposes isn’t valid. Or, like the other no doc/low doc loans, it could be a good choice for the self-employed, or for people who live primarily off of investments.
Whether or not any particular borrower would qualify for a no doc or low doc loan is based almost solely on credit score reports. In most no doc/low doc loans, an excellent or spotless credit history is required. Rates for no doc/low doc loans typically run about ½ of a percentage point to 3 points higher than a conventional loan.
In the end, most people don’t mind divulging sensitive credit, employment and financial information in order to secure the best rates on their home loan. But for those who either can’t provide such information or would rather not, in order to protect their privacy, a no documentation mortgage loan or low doc home loan is often the solution.
A true “no-doc” loan is exactly what it sounds like: there is no documentation required by the lender regarding a borrower’s income, employment or assets. If you were to buy a house using one of these loans, all you had to do was show up at the closing with the required down payment, sign the mortgage documents and presto, you became the owner of a new home.
When lenders first started offering these kinds of loans, you typically had to have a large down payment (25% or more) and excellent credit scores (720 or better) in order to qualify. The lenders figured that as long as you were super-responsible about paying your bills and that as long as they had enough of an equity cushion, it didn’t really matter to them if you could prove income, employment and assets. They figured that default was unlikely and that if it did occur, there would be enough equity left to make them whole. In the meantime, these lenders charged rates higher than “full-doc” loans to compensate for the added risk.
Once interest rates started going down and investment bankers on Wall Street figured they could make alot of money in the mortgage business, lenders started loosening their lending guidelines. At one point, there were a couple of lenders who would grant a “no-doc” mortgage to anyone with a 620 (not a typo) credit score and a 5% down payment.
Since then, the credit crunch hit and all of the lenders started tightening up their requirements. Nowadays very very few lenders, if any, offer “no doc” loans.