No Doc Mortgage: If you aren’t receiving regular pay checks but you have lots of assets or income. Then a no-doc loan might be a good option for you.
Even though it has a bad name. The no-income-verification mortgage is still a choice for some people who can’t get a traditional home loan.
It’s possible to identify the loan under different terms, like low-doc, no-doc, or a stated-income mortgage. Some critics of these loans argue that they allowed risky borrowers in the late 2000s to acquire houses they couldn’t pay for. Which was a factor in the housing crisis of 2008.
But some experts say that mortgages with no proof of income still have a place in the world of home loans today.
“These no doc mortgage loans enable people to qualify when traditional loan requirements hinder their ability to purchase or refinance a house.” Says Jamie Cavanaugh, the vice president of marketing for the Association of Independent Mortgage Experts. And the president of Amerifund Home Loans.
What Is a No-Income-Verification Mortgage?
A no-income-verification mortgage does not require the borrower to provide the lender with standard proof of income documents, such as pay stubs, W-2 forms, and tax returns. In fact, you might be able to get a mortgage using bank statements or other documents.
The lender isn’t able to simply accept your word that you’re able to repay the loan; however. There were many who did so in the early 2000s. This is why this type of mortgage became also known as a declared-income loan, or, more pejoratively, a liar’s loan. Because the borrower simply declared their income in order to qualify.
No verification of income Today’s mortgages are not the same as the ones that led to the crash of the housing market, which helped start the Great Recession. They are generally more expensive in terms of down costs and higher interest rates than traditional mortgages.
Use our free mortgage tool to get an idea of how much you’ll have to pay each month.
Who should get a no-document mortgage?
A loan that doesn’t check your salary might make sense. If you don’t have a steady W-2 income from a 9-to-5 job. This can be small business owners, freelancers, and contractors.
Cavanaugh says that people who work for themselves are great candidates for alternative-documentation loans like the no-income-verification mortgage.
Many self-employed individuals can take out more mortgages. Than their income qualifies as a result of deductions in taxes related to business, she declares.
“The fact is that their actual income, or what they pay into their accounts generally. Is greater than the amount that has been declared on tax returns,” Cavanaugh says.
Real estate investors can also be ideal candidates for these loan programs, according to Cynthia Meyer. A certified financial planner and the founder of Real Life Planning. She says that a mortgage that doesn’t require proof of income is good for real estate owners. “Who don’t show much net rental income after depreciation costs.”
Meyer says that other people who can gain from a no-income-verification mortgage are:
- Assets that are sufficient but have low or tax-optimized earnings, such as retired people. Tax optimization means making decisions. That will provide you with the best result for your tax liabilities both now and in the future.
- Businesses with excellent credit scores hold the majority of their assets within their business.
How does a no doc mortgage work?
The term “no doc mortgage” is actually an oxymoron, as you must still demonstrate your capacity to repay the mortgage.
Due in large part to the mortgage-related financial collapse that caused the financial crisis. The federal government has a requirement for banks to be vigilant when it comes to the approval process for loans.
According to the Consumer Financial Protection Bureau, for instance. Lenders shouldn’t base their decisions on what people say about their income. And they should verify the information with “reasonably trustworthy third-party records. Lenders have access to a variety of sources to assess the borrower’s capacity to pay for their loans. Including statements on payroll or military leave, earnings statements, and statements of investment accounts.
What Are the Types of No Doc Loan?
The lenders can offer a variety of mortgages with no doc loan, each with its own specific requirements:
- Stated-income, stated-asset loans. The SISA loan, which can be granted without verifying the income of the buyer and assets, is only available for property investment.
- state-income loan, verified assets. You can state your earnings; however, the lender must only confirm your assets before approving the SIVA loan, which is also known as the bank statement loan.
- No-income, verified asset loan A NIVA loan is similar to the SIVA loan, with the exception that the borrower’s income isn’t included in the application.
- No-income, no-assets loans The NINA loan is only available to investors in real estate who purchase rental properties that earn enough rental income to pay back the loan.
Prior to the housing crisis, they could obtain zero-income, no-job, and non-asset mortgages. Which didn’t require lenders to prove income, assets, or employment. The NINJA loan, which is no longer available on the market. Basically, it relied on the word of the borrower that the application for the loan was true.
What Are No-Income-Verification Loan Requirements?
No doc mortgages pose a greater risk to lenders than conventional mortgages. That’s why they typically have higher rates of interest, higher down payments, and higher credit score requirements.
“Rates tend to be higher than the typical mortgage loan. Which is typically 1 to 5 percent over market rates,” says Meyer, who is an investor in real estate.
It is also necessary to have an upper credit score to qualify for this kind of loan. Which is usually in the 700 range or higher in comparison to other loans. For instance, you can be eligible for the maximum Federal Housing Administration loan amount with 580 credit scores. As well as other kinds of FHA loans with scores as low as 500.
No-income-verification loans tend to require hefty down payments. Likely 20% or more compared with 3% for a conventional loan and 3.5% for an FHA loan, according to Meyer.
The lender may also look for other kinds of evidence to show you are able to pay. Such as tangible assets like rental properties, savings accounts, or stock portfolios.
Should You Get a No Doc mortgage Loan?
A no-income-verification loan can make sense if you can’t easily prove your income. If your tax returns are difficult. Or if you don’t want to go through the trouble of showing proof of your income.
It is also possible to look into it in any of these scenarios:
- You’re an investor in real estate. You may qualify for a no-doc loan based solely on the rent you’ll be charging for the home.
- You can write off a large portion of your business costs. This may push down your net earnings and reduce your chances of obtaining a loan.
- Income is fluctuating. A no doc mortgage might be an option if your income fluctuates seasonally or monthly as a freelancer or contractor and a traditional loan provider is unable to determine the cause.
- Taxpayers file multiple returns. If your taxes are complex and you are looking for a mortgage that does not require tax documents, this could be an ideal alternative.
- You don’t have a job, but you have substantial wealth. You may be eligible by virtue of your substantial assets.
If you’re unsure of what options you should pursue. Then you could “work with an expert mortgage broker. Who can help you search for the best lender for you,” Meyer says.
A mortgage professional can carefully examine your earnings, assets, and credit score, Cavanaugh says.
The broker will assess the loan options available to you. And “provide a side-by-side analysis of the costs and rates for each loan,” she says.
Alternatives to No Doc Mortgage
- A loan can be obtained from someone close to you, such as a family member or an acquaintance.
- A higher down payment on a traditional loan can allow you to qualify for an interest rate that is better.
- Keep detailed financial records in case you plan to be eligible for a mortgage as a self-employed borrower.
- It is also possible to look into nonprofits like, for instance. The Neighborhood Assistance Corp. of America. Which assists consumers who have poor credit to buy houses or modify loans that are predatory.