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When you apply for most traditional mortgages, you’ll give the lender a stack of documents to prove your financial health and show you can pay off the loan.
If your income is difficult to document or if you are looking to protect your privacy, another type of mortgage might be for you. Loans without documentation, as the name suggests, require little or no documentation from the borrower.
But there is a trade-off: you will usually pay a higher interest rate to get one of these loans.
Here’s what you need to know about no-doc loans:
What is a mortgage without a doc?
Non-documentation mortgage is a mortgage that does not require the borrower to provide standard income documents.
Instead of pay stubs, W-2 forms, and tax returns, lenders can accept bank statements as proof of income. They will also order an appraisal of the property to verify the resale potential of the investment.
The additional consumer protections make today’s docs-free loans a viable option for people with non-traditional incomes or those with complicated tax returns.
To verify: How to get a mortgage
Types of no-doc and low-doc mortgages
Several types of loans fall under the “no doc” umbrella.
Here’s what you might come across when shopping for a no-doc or low-doc loan:
SISA (Declared income, Declared assets)
When you apply for a stated income and stated asset loan, you disclose your annual income and assets on the mortgage application, and the lender agrees to accept the numbers you provide.
These loans prevailed until the 2008 financial crisis and played a major role in the real estate crash.
After the passage of the Dodd-Frank Act in 2010, these loans became severely limited and are no longer available for owner-occupied properties.
SIVA (Declared Income, Verified Assets)
With stated income and verified asset loans, the borrower again indicates their income on the mortgage application, but the lender verifies the borrower’s assets. Lenders typically ask for six to 24 months of bank statements.
NIVA (no income verification, verified assets)
Loans with no income and verified assets are similar to SIVA loans except that the borrower does not disclose their income at all on the mortgage application. The lender only checks the assets of the borrower.
NINA (no income verification, no asset verification)
No-income and no-asset loans have the least requirements of all no-doc and low-doc loans. The borrower does not indicate their income or assets on the mortgage application.
They will simply provide their name, social security number, the down payment amount and the address of the financed property. But the lender still has to make a good faith effort to verify that the borrower can repay the loan.
Approval is based primarily on the property’s value, as well as the borrower’s value. credit rating, a down payment and some type of proof of how they will make the monthly payments.
For example, real estate investors who buy rental properties can show that they will have enough rental income from the property to cover the new mortgage payment.
Advantages and disadvantages of a loan without doc
No-doc and low-doc loans make home ownership more accessible for non-traditional borrowers and have a subscription process, but they usually come with higher borrowing costs.
- They make home ownership more accessible. If you previously couldn’t get a traditional mortgage due to strict documentation requirements, a low doc loan can help you qualify for a loan.
- They are quicker to ask. With a traditional mortgage, the underwriting process typically takes several weeks. But you could get to the closing table much faster with a no-doc loan because there is less to verify.
- These types of loans are rare. It can be difficult to find a lender who offers no-doc or low-doc mortgages. Lenders may call any of their products a “no doc” loan if it has less stringent requirements, but you will usually need to produce some sort of documentation.
- They come with less favorable loan terms. The mortgage rates on some no doc or low doc home loans are up to 3 percentage points higher than what you would find on a conventional loan. It depends on your down payment, your credit rating, your assets, and what you can disclose about your job.
- The credit score and down payment requirements are higher. Loans without a doc usually set minimum credit score requirements around 700. They may also require a advance payment equal to 30% of the value of the house.
Keep reading: How Your Credit Score Affects Mortgage Rates
Is a mortgage without a doc right for you?
No-doc and low-doc mortgages exist for a reason. Maybe you can’t easily prove your income, or you just don’t want to provide a ton of documents to a stranger.
Here are some situations in which you might consider a mortgage without income verification:
- You deducted significant business expenses last year. As an entrepreneur, deducting expenses will generally reduce your bottom line income, which can potentially hurt your chances of getting mortgage approval. A low doc mortgage could put you back in the game.
- You have irregular income. Your income can fluctuate each month and even over the years if you work in certain industries, like sales, or if you are self-employed. If you have money in the bank but your income is volatile, a low doc mortgage might be right for you.
- You are a real estate investor. With a low doc loan, lenders can approve the mortgage based entirely on the value of the property. If the home you are buying is an investment, your expected rental income can help you get approved without any other asset or income documents.
- You have high net worth. If you’re no longer working because you’ve saved enough for retirement, inherited the money, or won the lottery, a no-doc mortgage can qualify you against your sizable assets.
Alternatives to no-doc loans
If you don’t want to face the downsides of a no doc or low doc loan, you have other options.
For example, if you are self employed, you can qualify for traditional loans if you are ready to go through the paperwork.
Here are some ways to qualify for a traditional mortgage:
- Keep detailed financial records. To be eligible for a mortgage, you will need to provide proof of income, tax returns and bank account statements.
- Improve your credit score. Each mortgage program has different eligibility requirements. To focus on increase your credit score before applying for the loan to improve your chances of qualifying.
- Lower your DTI. Your debt to income ratio measures how much of your monthly income goes to debt. Lenders typically look for a DTI of 43% or less. You can improve this measure by paying off your debt or increasing your income.
Although Credible does not currently offer doc-less loans, potential buyers can use our pre-approval tool to compare interest rates from different lenders.