No Doc Mortgage Loans may also be referred to as Low Doc Mortgages. Contrary to its title, at least a report on credit standing and a valuation of property to support the application is still needed. There is, however the undeniable decrease in document requirements compared to standard loan applications.
Many borrowers are self-employed or thrive on commissions. Due to the variable nature of their income unlike paycheck earners, documentation of specific earnings is preferred to be kept hidden or undocumented. As a result, these borrowers are willing to pay the price for approval flexibility and privacy. Increased interest rates and substantial down payments are willingly contended with. Apart from these extra costs, these private individuals are expected to uphold excellent credit disciplines.
Not all Loan Specialists agree with this No Doc Mortgage, however. Many loan specialists believe that an applicant's desire to keep some information undocumented in the belief that their generation of income is truly 'un-documentable', is not substantial. They (the loan specialists) know that if these borrowers just take the time to seek the advice of qualified loan officers, proper documentation can be produced to support their applications.
There are three types of No Doc Mortgage Loans.
Stated Income Mortgages - This is generally for people who are not paycheck workers. This means that other sources of income like commissions and tips contribute to the individual's monthly income. Self-employed entrepreneurs are also classified under this mortgage.
Apart from bank statements, tax returns and Profit and Loss statements, lenders will review debt-to-income ratio in the evaluation of stated income mortgages. The interest rate for stated income mortgages is about half a point higher than standard cash loans.
No Ratio Mortgages - The ratio referred to in the title is the debt-to-income ratio. In this type of loan, no information on income and tax returns are divulged. In fact, this type of No Doc Mortgage is also casually called the don't ask, don't tell mortgage. It precisely adheres to the 'mind your own business' policy of many individuals who prefer to keep financial analysts away from their personal earnings and financial activities.
Applicants for this loan submit a list of assets as the basis for the approval. Interest rate for no ratio mortgages can range from half a point to as much as 3 points higher than the standard cash loans.
No Income/ No Asset Verification Mortgages - This is what Hollywood stars would go for as it requires the least documentation. It only requires the borrowers name, social security number, the address of the property being bought and the amount of down payment. An excellent credit score and a 100% bill payment policy merit approval.
Interest rate for this mortgage can go as high as 3 points versus standard mortgages.
Overall, regardless of which type of No Doc Mortgage is preferred, the key signifier of this type of mortgage is summed up in 'respect for privacy'. It really doesn't matter whether one is an honest to goodness free lance entrepreneur or a blockbuster lead role player or even the kingpin of a crime group. This financing method is designed to keep private matters private.
Your Basic Options with Mortgage Loans
At first glance, the mortgage industry appears to be a fairly standardized finance industry. You need a loan, apply and a lender rejects or approves your loan. While this is generally true, the amount of the loan has a lot to do with the rates you will pay and even whether you will get the financing you seek.
Most homes under the $300,000 price level fall into a particular categorization in the mortgage industry. This category is known as conforming loans. Conforming loans are simply those that a lender can obtain a guarantee of repayment for from a third party. The third party is always a government or pseudo-government party like Fannie Mae, FHA, HUD and so on. With the guaranteed repayment security, lenders will offer you better initial and long-range terms on the loan. It is also much easier to get approved. The cap on these loans is not $300,000, but is a figure close to this amount. The exact number is dependent upon the part of the country you live in as the cap is adjusted to reflect local real estate values. The best way to find the cap for your area is to contact a lender.
Your mortgage options for homes valued from $300,000 on up are entirely different. The loans are categorized as non-conforming mortgages. Non-conforming simply means the amount of money being borrowed is in excess of what the FHA, Fannie Mae and so on will guarantee repayment. Without this security, the lender will shift more of the risk of the loan to you. In practical terms, this means you will have to pay slightly higher fees, interest rates and points, if any, on the loan. One way to combat this is to put down more money on the home. This effectively lowers the loan to value ratio, and makes the lender more comfortable with issuing the loan.
Conforming and non-conforming loans are not your only options. The mortgage industry has matured significantly in the last 15 years with the new found maturity being expressed in new loan programs. These programs include, but are not limited to, no document loans, zero interest loans, hybrid mortgages, balloon mortgages, bad credit mortgages and hard money loans to mention only a few. Simply put, there is a lender for practically every borrower these days.
When considering your mortgage options, the best approach is to identify the situation you are in and find multiple lenders that write loans for that scenario. Then it is just a matter of shopping for the best terms for your loan.
Both Edwin Linares & Raynor James are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Edwin Linares has sinced written about articles on various topics from Real Estate, Business Loans and Debts Loans. E. Linares is Chief Visionary Architect at Commercial Magnet:: the new face of the online lending marketplace where borrowers and lenders connect; 6 points of service to help build your wealth! Commercial Magnet is the entrepreneurial platform that takes. Edwin Linares's top article generates over 9900 views. to your Favourites.
Raynor James has sinced written about articles on various topics from Real Estate, Business and Finance and Debts Loans. Raynor James is with FSBOAmerica.org - information on .. Raynor James's top article generates over 90500 views. to your Favourites.