So you're ready to buy a house, but you don't have a solid two year's worth of income history. A no doc, or low doc, loan might help you out. These loans got their nickname because the borrower doesn't need to provide a lot of documentation. Some are approved based on the credit score alone -- albeit a very good one. Some lenders may be willing to approve you without income verification or other information required for a traditional mortgage loan.
No doc loans are appealing to people who don't work traditional nine-to-five jobs with predictable income. We're talking about waiters, contractors, investors, landlords and the self employed among others. They're also set up for public figures who want their financial information to remain private for security reasons. Sometimes, when people working in these professions try to apply for a traditional mortgage loan, they encounter difficulties trying to prove their income to the lender. A lot of paperwork, receipts, tax returns and bank statements are required to present to the lender. Preparing enough information for the lender might not be feasible for everyone.
In the simplest form of a no doc loan, the only information required is your name, social security number, the down payment amount and the property's appraised value. The lender can then run your credit report and base the approval decision on the credit score. The borrower is usually asked to name his profession and the length of his employment. There are some other forms of a no doc loan. The stated-income type means you declare your income on the application and attach a supplemental tax return or bank statement. Another way is to list the other assets you own, such as other real estate and bank accounts.
Approval for a no doc loan is based on your credit score and history. You do have to sport a nearly flawless credit rating. No doc loans will also take a lot out of your pocket in the long run. These loans are a much greater risk for the lender than the traditional mortgage, so they cover themselves by charging a high interest rate. Additionally, lenders usually want a cash down payment, and it might be more than 20 percent.
The number of no doc loans decreased dramatically after the mortgage crisis around 2008. Some experts in the mortgage industry even argued these loans were a contributing factor to the crisis. Those experts suggest borrowers may have taken out these loans with the support of a solid credit score, but couldn't afford to keep up with the monthly payments. As of May 2012, it was difficult to find a lender that offered this service. However, with a solid credit score and down payment, it could be worth the effort to look for one if a no doc loan suits your situation.