After the financial crash in 2008, financial regulations went through a massive renovation. But the surprising truth is that even after this renovation, no doc loans still exist and plenty of people still get them every day. You can apply for no doc loans, too. Scroll down to learn what no doc loans are and how to apply for them.
What Is A No Doc Loan?
A “no doc loan” is a loan that requires no income verification when you apply. No doc loans are ideal for people who have an income that is difficult to verify, such as people who work on tips or who have an income that fluctuates a lot, such as those who work on commission. Real estate investors usually use no doc loans to purchase new properties and quickly sell those properties after flipping them. But you don’t have to be a real estate investor to apply for no doc loans.
This type of loan is perfect with people who have a cash flow that isn’t easily reflected in a consistent bank statement. For other kinds of loans, lenders typically look at past bank statements to be certain that you have the capital to pay back the loan on time. No doc loans take that step out of the equation entirely. But there are things you will need to apply for this loan.
What You Need To Apply For No Doc Loans
Typically, no doc loan applications don’t ask for much. Unlike other loans, applying for a no doc loan is relatively simple, and you don’t need to supply a lot of extra documentation. Aside from the application itself, no doc loans also ask for:
- Good or very good credit
- Ability to show taxable income
- Minimum 10% down payment
- Identification, such as Social Security Number
- A low income-to-debt ratio
Is A No Doc Loan Safe?
To be blunt, no doc loans are risky – both for the lender and for the borrower. A no doc loan, even the updated financially regulated ones you can apply for today, is more or less an agreement made on a handshake. The borrower promises that they can repay the loan and the lender has to believe the borrower without any proof. For that reason, no doc loans typically have a higher interest rate and a shorter repayment period.
The quick turnaround time for these loans is what makes the loan so appealing for real estate investors. But that doesn’t mean that people who work on tips, commission, and freelance need to think of this loan as unattainable. Usually, lenders are willing to grant no doc loans if the borrower has a lump sum down payment ready to go – a sort of good faith effort that comforts the lender.
Is It Hard To Get A No Doc Loan?
If you have an exceptionally good credit score – at least 700 or higher – then you probably won’t run into any trouble applying for a no doc loan. Of course, the same could be said for every other loan available, too. Since lenders rely on credit score to prove good credit behavior, it’s very important to have a credit score that is firmly in the green. It’s even better if you can maintain that high credit score for one year or more if you want to prove that your credit and income is steady.
That said, it is harder to get a no doc loan today that it was before the housing crisis. Many economic experts point at the previous version of no doc loans as being the cause for the 2008 recession, since no doc loans at that time were also called “liar loans.” These loans truly required no other documentation apart from the application for the loan, which meant that lenders were granting loans without any feasible confidence that the loan would be returned. In the end, that kind of free-wheeling lending collapsed an entire economy.
Today, no doc loans are not at all like liar loans—what you put on the document has to be proven somehow, either through taxable income or bank statements. But no doc loans are still much easier to apply for than other loans, which look at other assets you might have, such as other homes or cars. You can apply for a no doc loan through a reliable lender as long as you have a high credit score, taxable income, a low income-to-debt ratio, and a sizeable down payment on hand.