All About No and Low Documentation Mortgages
No- and low-documentation (no and low doc for short) mortgage loans are a good way for people to keep their privacy guarded or to get a mortgage when it's logistically too difficult to document their income. However, less documentation comes at a higher price and you must have good to excellent credit.
To get a stated-income mortgage, you must disclose your annual income for the last two years, but instead of showing pay stubs and W-2 forms, you might show tax returns and bank statements. It may also be necessary to show a profit-and-loss statement and you must list out your debts and assets for the lender.
Those who tend to need stated-income mortgages are people who are paid cash (like waiters and waitresses or those on commission) or are self-employed and make enough in income, but write off a lot on their taxes and thus, their true income is not reflected in their tax returns.
The interest rate can range from one-eighth to more than one percent more than a loan with a standard rate. How much more depends on:
- How stable your income is
- The debt-to-income ratio (a reflection of your ability to make the monthly payments)
- Your down payment amount
- Your credit score
- The appraised property value
No-ratio loans don't require you to declare what your income is, so you don't have to show pay stubs, W-2s or tax returns. Because the lender doesn't know what your income is, the debt-to-income ratio can't be calculated. However, you still have to list assets so that the lender knows the loan can be repaid.
Someone who is going through a major life change such as divorce, death of a spouse, career change or retirement may want to get a no-ratio loan. No-ratio loans are also good for people who have abundant assets but for whom gathering documentation is too difficult and may cost more than the cost in interest rate.
The interest rate can range from a half-percent to as much as three percent more than a conventional rate, again, depending on things like income, credit score, etc.
No-doc loans, also known as "no income no asset" or NINA loans, require the least documentation. Generally, you only need to disclose name, Social Security number, the down payment amount and the address of the property being financed. You may also have to disclose your occupation and the length of time in that occupation. But typically, the better your credit score, the less documentation you have to show.
This type of loan is meant for people who want maximum privacy-public figures, well-known actors, high-profile citizens, and anyone else who doesn't want to disclose their financial history, such as someone securing a loan by using an inheritance. Those who get a NINA must have an excellent credit score and never fail to pay a bill on time.
A no-doc mortgage rate may cost as much as three percent more than a conventional rate, depending on the size of the down payment, credit score, assets and how much the borrower is willing to disclose about their employment.
No- and low-doc mortgages are good for people that have difficulty or do not wish to document their income. Remember that the less documentation you provide, the more you'll have to pay in rate. Remember too, that it's possible you may be able to document what you think you can't. Talk to your mortgage banker if you think a no- or low-doc mortgage is right for your situation.
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