Borrowers can apply for a mortgage loan with minimal documentation or lite doc loans. A lot of paperwork is required to get a mortgage. Document your income by providing pay slips, W2 forms, and tax returns. Also, statements from different accounts are needed. If your mortgage broker or lender keeps asking you for documentation, it is a sign that they are trying to get you the best mortgage possible.
Some cannot produce the documents required. These people may find a low-documentation or non-documentation loan appealing.
The Key Takeaways
- A low-documentation loan may be required if you are self-employed, a young worker, or retired.
- Although the Consumer Financial Protection Bureau requires lenders to ensure you are eligible for a loan, some lenders will allow you to qualify in any way you like.
- A low-doc loan is more likely to be approved if you have a good credit score, lots of assets, or a higher down payment.
- Because of the higher risk lenders take on with low documentation loans, they often charge higher interest rates.
The reasons for low documentation loans
You might not be available to provide information to lenders for many reasons. Here are some examples:
- Self-employed prefer to report lower income for tax purposes. However, this can backfire when applying for loans
- Young workers have either low or no wages in their past.
- New owners must not show a history of consistent earnings (generally, several years’ worth)
- Retirement with investment income
- Privacy requires that you keep your income level private
- It isn’t easy to find and organize documentation.
- The lender will not accept income or assets that aren’t documented.
Qualifying without Documentation
The days of loan approvals being easy are gone. You could tell your mortgage broker what you earned, and no proof was needed. These “liar” loans, also known as income statements, are no longer available.
The Consumer Financial Protection Bureau (CFPB) now requires that lenders ensure you can repay any loans approved if it is a “qualifying loan.” 1 However, some lenders will work in non-qualified mortgage spaces.
These lenders don’t want to extend their lending history back to 2006. They aren’t interested in subprime loans that are incorrectly numbered. They are open to working with those who can repay but have not been able to show their income or assets in traditional formats.
You are eligible for No-Doc loans.
These loans are only available to those who are attractive borrowers. The following characteristics will help you meet that criterion.
Lenders won’t settle for less information if your credit score exceeds 720. However, it might not be a problem if your credit report is clean.
An income boost is a great way to get approved for a loan. Non-qualified lenders may be more flexible in evaluating your income. Make your case even if you don’t have a W2 to support it; you may be approved.
Your case will be helped if you have assets or backup money. You might have significant investment and bank accounts to use to make payments. If you have substantial assets, lenders may be more open to income.
Lenders want to reduce their risk and see that you have some skin in the game. You have better odds with low documentation lenders if you make a higher down payment. Conventional mortgages require 20%, while non-qualified lenders may require 40%. That equity can be put to good use any day.
The Cost
There is no free lunch. Lenders are taking on more risk because you don’t have to prove your ability to repay the loan using standard documents. Lenders are taking on more risk because they work in gray (but still legal) areas.
Expect an interest rate at most one percent higher for low documentation loans. Additional processing fees may also be exorbitant. This might not be the best choice if you are looking for an easy way to apply for loans. If you are in one of the above categories, this might still be your best option. Call for apply: +1 (571) 544-6600
