how no documentation no doc mortgages work
a no documentation mortgage is a loan to buy a home that does not require the income documents required by a typical mortgage these loans are considered higher risk 1typically you must submit proof of income to qualify for a mortgage required documentation may include w2s pay stubs employment letters and or recent tax returns 2 lenders want to see that you can afford payments on the loan so they want proof you have a stable and reliable source of income some mortgages however don t require any proof of income these are called no documentation no doc mortgages no documentation loans or no income verification mortgages with these loans borrowers aren t required to provide a lot of paperwork like the docs mentioned above instead they may only have to provide a declaration that indicates they are able to repay the loan these mortgages are commonly granted to people who don t have a regular income source self employed individuals new immigrants or temporary workers income requirements are just part of the criteria you need to be approved for a mortgage you ll also need to meet other criteria such as a down payment and a good credit score among others no documentation no doc mortgages do not meet the consumer credit protection act requirement to reasonably verify the borrower s financials because they don t require income verification these mortgages tend to be very risky and they tend to be increasingly rare since the 2010 passage of the dodd frank wall street reform and consumer protection act which requires documentation on all types of loans especially mortgages passed in the wake of the financial crisis of 2008 the dodd frank wall street reform and consumer protection act instituted reforms and changes to the banking financial industry many of which focused on the lending business subprime mortgages and other high risk loan products notorious for their high levels of default were considered among the main culprits of the crisis which triggered the two year great recession no doc mortgages since 2010in a sense true no doc mortgages no longer exist now no lender will rely just on your word that you can repay the loan as they did in the housing market boom of the early 2000s this practice is illegal lenders must verify the information you provide using some kind of documentation 3however mortgage lenders can still ease their requirements regarding income documentation in other ways borrowers can still find loans that do not require tax returns or other traditional income verifying documents instead the lender allows you use other items such as bank statements or brokerage statements to show that you can meet your mortgage payments special considerationsno doc mortgages are commonly granted to individuals who don t have a regular source of income including those who are self employed or whose wealth stems from investments or unearned income sources they help house flippers and landlords with multiple expense write offs on their tax returns to buy investment properties without thoroughly documenting their income but lenders granting these loans require borrowers to have excellent credit scores and high cash reserves available to make large down payments the verification of a borrowers employment merely states monthly gross income on the application down payment requirements are also different when it comes to these mortgages at least a 30 down payment is required while other mortgages may be as much as 35 to 50 in comparison most conventional mortgages require a 20 down payment such mortgages also have a maximum 70 loan to value ratio ltv this ratio is calculated as the amount of the mortgage lien divided by the appraised value of the property expressed as a percentage the higher the borrower s down payment on the investment property the easier it is to be approved for the loan this business model holds true for many mortgages because lenders see that the borrower is willing to offer a significant amount of capital this large lump sum payment may mean there is less likelihood that the borrower will default because of their considerable investment types of no document mortgagesno doc mortgages fall into the alt a category of lending products they are considered as falling in between prime and subprime mortgages in terms of risk other types of alt a loans include 4the interest rates for no documentation and other alt a products are usually higher than rates for a traditional mortgage loan many of these limited documentation loans take their security basis from the equity position in a property a mortgage calculator can be a good resource to help you budget for the monthly cost of your payment 