Loans - 4 Tips About No Documentation Mortgage Loans
by Ben Afzal
(loans for home equity)
Lenders traditionally required a borrower to document income. This came in the form of the last month's pay stubs, copies of the past 2 years tax returns, 1099s, or other income documents. This documentation allowed a lender to verify the income that you are claiming on the loan application.
To a lender your income is one of the most basic predictors of whether you should get a loan or not. If your income is $10,000 per month and your mortgage payment is only $750 then you seem like a relatively safe bet for someone to lend to. If your monthly income is $5,000 and your proposed mortgage payment will be $3,000 then you may not be such a safe bet.
Lenders with "No Doc" loans can allow you to apply without documenting your income.
No Asset Documentation
Lenders often want to see that you are good with your money. One way to measure that is to see how much you have saved up.
Lenders often require documentation on your assets. This can come in the form of the past several month's bank statements, retirement fund statements, investment fund statements, or other documentation showing your liquid assets.
Often times lenders want to see at least several months of "reserves" which is an industry term meaning having the money currently on hand to pay a specified number of months mortgage payments.
In counting towards your assets the lender will count money in your bank as a liquid asset, but calculate your retirements as having less liquidity. Some lenders will weigh the retirement funds at only 75% of their value because or restrictions on the use of that cash, its taxability upon withdrawal, etc.
Many lenders have loans that do not require asset documentation of any kind.
No Employment Verification
Many lenders want to check on your employment. This means your current status, as well as your employment over the last two years. If there are employment gaps you may need to explain them. Lenders like to see people who are in the same line of work for a while. A sudden increase in compensation recently may be discounted by a lender. They like to see stability in earnings. If your compensation spikes in some months because of commissions, lenders will treat that as happening occasionally but not routinely and will view your income that way.
Lenders can verify your employment in several ways. Often times this can be mentioned on your credit report. They may require a written verification from your employer about your title, compensation, job term, etc. Some lenders may only do a verbal verification of your employment. Make sure the person who the lender calls to verbally verify your job knows what they are doing. Sometimes they get your title wrong, start dates, etc.
There are lenders who also require no employment documentation.
Things Lender Will Still Check
Many lenders will still require a credit report. If you have always paid your mortgage on time that will be regarded as a strong plus. Generally strong credit is also looked on favorably.
You are much more likely to be able to get a "No Doc" loan if you have higher credit.
Often times these loans can require mixed documentation. They may not require income documentation but require asset documentation or job verification.
There are loans where almost nothing is verified. These are usually loans where people have a tremendous amount of equity in their property and as such the lender's risk is a lot lower.
It is still possible to get no documentation loans for many people. This can include people who cannot document income properly or don't want to share their private financial information.
About the AuthorBen Afzal is the President of Archer Pacific, a mortgage company. His firm works with homeowners and real estate investors to provide them the mortgage solutions they need. Archer Pacific