No-Doc Loans
In this guide on Non-QM Mortgage Brokers, we will cover no-doc loans and how no-doc home loans work. We will cover the eligibility requirements on no-doc loans for owner-occupant homes, second homes, and investment homes. Non-QM Mortgage Brokers has no-doc loans for apartments up to 18 units. No-doc loans are very similar to DSCR mortgage loans.
On DSCR loans, you need to show the proposed rental income of the property to cover the principal, interest, tax, and insurance. With no-doc loans, the proposed rental income does not need to cover the PITI. You do not have to be self-employed to be eligible for no-doc loans. There is no income tax returns required and no employment verification. No-doc home loans are ideal for self-employed borrowers and business owners who have a substantial amount of unreimbursed business expenses. In the following paragraphs, we will cover and discuss the eligibility requirements for no-doc loans.
What Are No-Doc Loans?
No-doc loans are mortgage loans for owner-occupant primary homes, second homes, and investment properties that do not require any income documentation. By no income documentation, it means no income tax returns, no W2s, no 1099, and no seasoned fund requirements.
In general, you just need one month of bank statements showing the down payment and closing costs, and reserves. Reserves are one month of principal, interest, tax, and insurance (PITI) on the subject property. Reserve requirements are based on the borrower’s credit scores. Credit scores are very important on no-doc loans.
What Type of Lenders Over No-Doc Loans?
No-doc loans were very common and popular prior to the 2008 financial crisis. Many mortgage lenders specialized in no-doc loans and stated-income mortgage loans on primary homes, second homes, and investment properties.
In this guide on no-doc loans, we will focus on a non-QM product known as a “no income verification mortgage.” After reading this guide on no-doc loans, you will know what the product is and how it is used. When applying for a mortgage, many Non-QM loans are available for borrowers based on their specific needs.
What Types of No-Doc Loans Are Available?
Are No-Doc Loans the same as no-income verification mortgage loans? A no-income verification mortgage is often referred to as a no-doc loan or a stated-income mortgage. This loan product will provide home buyers with an alternative option when they would not qualify for a standard mortgage. A no-income verification mortgage will allow prospective buyers to use bank statements instead of W2s or pay stubs typically required when qualifying for a mortgage.
As a result of the leniency given to buyers with no income verification mortgages, which were very commonly used in the early 2000s, many people perceived them as reckless and a substantiating factor to the housing crash in 2008. In some cases, you can find justification in those opinions.
What Types of Borrowers Benefit From No-Doc Loans?
There is still a need in today’s market for a no-income verification mortgage. The most common applicants for a no-doc loan are small business owners, contractors, freelancers, and other professionals whom w2 does not pay. By far, the most popular applicant will be self-employed small business owners.
What Type of Documents Is Required on No-Doc Loans?
Often, small business owners pay themselves a smaller wage regularly but, in turn, will find more tax reductions. Those tax reductions will make it easier for the applicant to afford the mortgage. The funds saved with the tax reductions will be shown in the bank statements and be considered effective income.
This practice is also quite commonly used by rental property investors. The depreciation write-off will offset the rental income they show when filing taxes. Other probable applicants who may consider a no-doc loan when purchasing a home are retired people with minimal income but large amounts of savings and other assets. As previously stated, the no-doc loan carried a bad reputation.
Can You Qualify For No-Doc Loans on Primary Homes?
Yes, you can qualify for primary no-doc loans with a 20% to 30% down payment with one-year reserves. The higher your credit scores, the lower the down payment requirements. Federal guidelines have helped to restore the credibility of the product. Regardless of what mortgage product you choose, the ability to repay still has to be confirmed. Without having clear and precise income verification, no income verification mortgages are still considered high risk to investors.
Other No Documentation Mortgage Loans For Primary and Investment Homes
Although available at higher rates of interest, peer-to-peer lending is another way of availing of high-value financing in the absence of income proof or ITR. Make sure to compare lenders and arrive at the best deal on a loan against property.
As such, to qualify for a no-doc loan, you will likely be required to have higher credit scores higher down payment, and the interest rate will be higher than a conventional mortgage. It is not uncommon for interest rates to be up to 5 points higher than conventional loans. No-doc loans are much more stringent when compared to those like an FHA mortgage.
Qualifying For Traditional Versus No-Doc Loans
The typical FHA loan will require anywhere from 3.5% to 10% down payment, and at Non-QM Mortgage Brokers, we can approve applicants with credit scores as low as 500, as long as they have good payment history over the previous 12 consecutive months. No income verification mortgages will require a minimum of 20% down and a credit score of 700 or higher. Ultimately, this loan product has pros and cons, but for the right person, it could be the difference between buying a house and not buying a house.