What happens when a retiree, a contractor, or a professional investor wants to get access to a home loan? It may be quite difficult to provide all the documents they would need for the entire process. Now, this is where the No Doc loans come in.
No doc loans allow requesters to gain access to loans without income verification. However, your down payment and credit score have to be quite impressive to increase your chances of getting the loan.
Do you want to know more about it? Stay with me as we discuss in detail the intricacies of the no doc loans and how obtainable it is.
What Are No Doc Loans?
Usually, when someone applies for a loan, they are required to show the lender certain documents. These documents could include bank statements, tax returns or pay stubs etc. to verify their income. However, with a no doc loan, the lenders don’t require them.
A no doc loan allows borrowers to get loans without having to provide income verification documents.
The lenders approve the loans based on a credit check that surely confirms the borrower is trustworthy and can afford to pay the loans. It doesn’t necessarily mean the whole process is completely document-free. However, the required documents are considerably reduced.
Can I Get A Loan Without Proof Of Income?
Getting a loan without proof of income is possible. Contrary to popular beliefs, most lenders have more interest in your credit score than they are in knowing how much you make.
There are many no income verification loans that allow people without a job or income or even assets to borrow extra cash. However, the downsides to this include the high mortgage rates and short repayment periods.
How Does No Doc Loan Work?
Well, normally, you will have to submit proof of income including W2s, pay stubs, employment letters, bank statements, and/or recent tax returns to the lender. The aim of this is to assure the lender that you have a steady stream of income and can afford to pay back the loan.
While this may be the norm, there are exceptions where proof of income is not required. These exceptions are called no documentation (no doc) mortgages, no documentation loans, or no income verification mortgages.
You only need to provide a declaration showing that you can repay the loan. People who don’t have a regular income source, self-employed individuals, new immigrants, or temporary workers are the most common recipients of these no doc loans.
No doc mortgages do not meet the Consumer Credit Protection Act requirement to comprehensively confirm the borrower’s financial data. They are not necessarily illegal; however, they are quite risky.
There are four main types of no-income verification mortgage loans. And, the difference between each of them is their level of requirements.
- SISA – stated income, stated assets
- SIVA – stated income, verified assets
- NIVA – no income verification, verified assets
- NINJA – no income verification, no job, no asset verification
Stated Income, Stated Assets (SISA)
Here, the lender accepts the income and assets you present with no need for documentation. Small businesses often use a SISA loan if they have a considerable amount of income and assets that are difficult to document.
This will prove to be of great help to small business owners who keep all their assets in a business account and don’t record their returns with pay stubs, W-2 forms or 1099 forms.
Stated Income, Verified Assets (SIVA)
SIVA is most preferable if you can not document a huge portion of your earnings, but you have accessible assets that one can verify.
A practical example of where SIVA would be fitting is for someone whose income is majorly from tips or gratuities but still has a bank account in their name.
No Income Verification, Verified Assets (NIVA)
A retiree who takes out money from his retirement accounts may have documented assets but no considerable source of income. This way, they can benefit from a NIVA loan.
No income verification, verified assets is for you if you have assets that you can verify but the income you can’t document. So, the lender just verifies your assets and does not consider your income.
No Income Verification, No Job, No Asset Verification (NINJA)
This type has the least number of requirements. No income, no jobs, no assets loans are best for people that may be able to provide documentation for neither their assets nor income.
A practical example could be if someone had a foreign company holding their assets in a foreign bank and may not be able to provide any acceptable documentation for U.S. lenders.
A NINJA loan would be most useful here to help skip the document translation.
What Banks Offer No Doc Loans?
Some banks offer no doc loans by using private equity from investors to create these product offerings. Direct lenders like Chase Bank, Citibank and U.S. Bank; wholesale lenders like Stearns, JMAC and Newfi; and even large financial investment firms like Charles Schwab.
Several other banks and credit unions do not offer these types of loans as it is a little challenging to package and sell them to investors in the secondary market.
Also, these types of loans are available from lenders offering portfolio lending options and are not limited by qualified mortgage rules by government agencies like Fannie Mae or Freddie Mac.
The lenders determine their conditions for you to qualify based on their risk tolerance or your investment requirements.
How Do I Qualify for No Doc Loans?
The requirements for these loans are a lot lesser than those of a regular mortgage loan, but you should be an active borrower. Having a credit score of about 720 will go a long way to convince the lender to grant you the loan with little or no questions asked.
Though if every other thing you should have is intact but the credit report is a little iffy, it may not be the overall deciding factor.
Another important factor is your income. Having assets and enough reserve money will help expedite your loan approval. They could serve as fallback plans to make your loan payments.
Lenders want to know that you have an alternate source of wealth to pay for the loans since they aim to minimize their risks in the game. So, the larger the down payment you make, the better your chances with no doc loans.
Pros and Cons of No Doc Loans
If you’re considering a no-income verification mortgage, it is most advisable to study the advantages and disadvantages.
Pros
- Unreliable income doesn’t necessarily affect you if you have other assets or cash flow to back a regular mortgage payment.
- No documentation loan makes it easier to buy a home if you’re self-employed or run a business.
Cons
- The interest rates on no-doc mortgages are significantly higher than those on more traditional mortgage loans. The idea is to cushion the risk the lender has to bear. So, if you fail to make the loan repayment, their losses are less.
- No docs loans are not very easy to find as lenders are not readily available to always offer that package. Consequently, it will be best if your credit score and your down payment are both impressive.
Bottom Line
It’s always easier to run through a loan process without having to sweat about all the technicalities of the various documents that may be required.
That’s why people jump at the idea of a No document loan. However, the supply isn’t quite as much as the demand. So, be cautious when you are searching for a lender and thoroughly consider all the terms and conditions before sealing the deal.
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