What is a no-doc mortgage? Sometimes referred to as a low-doc or no-doc mortgage, it’s exactly what it sounds like. No documentation or verification of your income, assets, or job history is required by the lender to get you approved for a home loan. While this may seem like an ideal situation for many people, there are some things you should know before choosing this type of loan option. Here are 5 things you need to know about no-doc mortgages.
If you’re interested in getting a mortgage but are worried about how to get your hands on one with no documentation, then you might be wondering what in the world that even means and if it’s even possible. If so, then you’ve come to the right place to find out more about the topic! Here are five things you need to know about no-doc mortgages.
- What is a no-doc mortgage?
- Who can use it?
- How does it work?
- What are the risks?
- The benefits of using it
1) What is a no-doc mortgage?
A no-doc mortgage is a home loan that doesn’t require borrowers to provide proof of income, assets, or credit. This lack of documentation makes these mortgages a tempting choice for homebuyers with limited financial resources and no credit history—but it also exposes them to a higher risk of being approved for high loan amounts than they can afford. Most lenders won’t offer you a no-doc mortgage unless you have been denied conventional financing, but even then, there may be an extra application fee involved. In addition to saving yourself time and money on your closing costs, you can use these loans as leverage to negotiate a lower interest rate with your lender.
2) Who can use it?
People who want to buy a home. What is it?: A no-doc mortgage is a type of loan that doesn’t require you to submit documentation proving your income or assets. While they aren’t always available, they can be an attractive option for people with good credit scores and high incomes. They are also sometimes called low doc mortgages or no income verification loans, but in any case, these types of mortgages are often available for borrowers with higher credit scores and better debt-to-income ratios than those required by traditional lenders—meaning that if you have good credit and make enough money, you might be able to qualify for one even if you don’t have documents like W2s or tax returns handy.
3) How does it work?
There are a number of myths floating around about no-doc mortgages, but what is a no-doc mortgage? In short, it’s basically just as it sounds: you don’t have to provide documentation proving your income. This leaves room for those who might otherwise be excluded from homeownership to purchase their own home.
4) What are the risks?
Risks are always associated with things that go against standard practices. In real estate, there are many popular types of mortgages: Conventional, Federal Housing Administration (FHA), Veterans Affairs (VA), and Fannie Mae and Freddie Mac conventional loans. Each mortgage comes with its own risks that you should be aware of before signing on. A no-doc mortgage is one such risk—it is considered a higher-risk loan because it lowers your credit score by five points on average.
5) The benefits of using it
First and foremost, there’s no need to submit paperwork documenting your income, credit history, or assets. This is particularly useful for self-employed workers who don’t have tax returns, annual statements from their business, pay stubs, or other documents that could be used to prove income. It’s also beneficial for people with a limited credit history and those who are waiting for new credit reports to be generated due to recent late payments on debt.