In the world of financing, there are dozens of different types of loans, and each has strict requirements for qualifying for them. At AS-IS Loans, we understand the frustration and confusion of trying to apply for the right loan, and we want to simplify the process for you as much as we can. In general, AS-Is Loans is willing to work with people of any financial situation. But before you give us a call, you might consider one specific type of loan that makes mortgaging easier: the no doc loan.
What Is a No Doc Loan?
A no doc loan is short for “no documentation mortgage” and is basically a mortgage loan with an application that does not require supporting evidence of borrower income. A no doc loan means there is no need to supply information about your income because the no doc loan does not ask to verify your finances. Rather, this kind of loan is made based on a declaration confirming the borrower can afford the loan payments.
A no doc loan usually has a higher interest rate, because this type of loan is meant to be temporary and quickly turned around. No doc interest rates are higher than traditional mortgage loans because limited documentation loans take their security basis from the equity position in a property.
Who Uses No Doc Loans?
Borrowers such as self-employed persons, those whose income mainly relies on tips, and independent contractors may have difficulty documenting their income. No doc loans are also frequently used by landlords or house flippers who have expense write-offs on their tax returns to buy investment properties without thoroughly documenting their income.
Am I Qualified for a No Doc Loan?
Qualifying for a no doc loan may not rely on accounting for your income, but it does rely on other factors. For example, bank statements and asset documentation are common requirements. Many lenders also require that borrowers have excellent credit scores and high cash reserves available to make down payments. You might also be asked to verify your employment, which usually means that the borrower is asked to state a monthly gross income on the application. But the better your credit score, the less documentation you have to show.
However, while no doc loans are willing to put trust in your word and credit score, lenders are more comfortable granting applications where at least 30% of the down payment is ready up front. Having a significant lump sum payment at the start means that you are serious about the loan and most likely in a stable financial situation to continue to repay the loan. This is something to keep in mind when applying for a no doc loan.
To apply for a no doc loan, you will typically need:
- Your name
- Social security number
- The down payment
- Address of the property being financed
What Are Similar Loans?
In a sea of loans, there are several types of loans that are similar to a no doc loan. These loans fall into the Alt-A category of lending, which is a classification of mortgages with a risk profile falling between prime and subprime. The high risk of these loans is caused by what makes them so appealing, which would be the decided lack of financial documentation required for the loan. Other loans in the Alt-A category are:
- Low documentation loan (Low-Doc), which requires very little information on borrowers and is granted based on credit scores
- No Income-No Asset (NINA) mortgage programs, which do not require the borrower to disclose income or assets as part of loan calculations, but do verify employment before granting the loan
- NINJA loans, which are granted to a borrower with no income, no job, and no assets, ignoring the verification process
No doc loans are good options if you are self-employed, rely on tips or seasonal income, or have difficulty documenting your income. You might also look into no doc loans if you have trouble qualifying for traditional mortgage loans. No doc loans are an ideal solution for many borrowers who are in non-traditional financial situations or who plan on paying back the loan quickly.
However, you should only apply for a no-income verification mortgage if you can afford to make payments. These loans should be seen as a solution for cutting down paperwork, not for avoiding the common sense question of affordability.
At AS-IS Loans, we’ll work with you no matter what your situation. If you are interested in a no doc loan, call today to see what we can do for you.