What happens when a retiree, contractor, or professional investor wants to have access to a home loan? It may be quite difficult to provide all the documents they would need for the whole process. Now, this is where No Doc loans come into play.
No document loan allows applicants to access loans without income verification. However, your down payment and credit score must be impressive enough to increase your chances of getting the loan.
Would you like to know more? Stay with me as we discuss in detail the intricacies of undocumented loans and how obtainable it is.
What is No Doc Loans?
These documents could include bank statements, tax returns or pay slips, etc. to check their income. However, with undocumented loans, lenders don’t require them.
An undocumented loan allows borrowers to obtain loans without having to provide income verification documents.
The lenders approve the loans based on a credit check which surely confirms that the borrower is reliable and can afford to pay the loans. It doesn’t necessarily mean that the whole process is completely undocumented. However, the required documents are significantly reduced.
Can I obtain a loan without a guarantee of payment?
Obtaining a loan without proof of income is possible. Contrary to popular belief, most lenders have more interest in your credit score than in knowing how much you earn.
Many unverified income loans allow people without a job or income or even assets to borrow extra money.
How does no document loan work?
Well, normally, you will need to present the lender with proof of income, including W2, payslips, employment letters, bank statements, and/or recent tax returns. The purpose of this is to ensure the lender has a steady stream of income and can afford to repay the loan.
These exceptions are called undocumented mortgages (no documents), undocumented loans, or mortgages without income verification.
You just need to provide a statement showing that you can repay the loan. People who do not have a regular source of income, self-employed, new immigrants, or temporary workers are the most common recipients of these no-doc loans.
No doc the mortgages do not meet the Consumer Credit Protection Law obligation to fully confirm the borrower’s financial data.
There are four major types of no-income guarantee mortgage loans. And the difference between each of them is their level of requirements.
- SISA – declared income, declared assets
- SIVA – declared income, ascertained assets
- NIVA – no income verification, assets verified
- NINJA – no income verification, no work, no asset verification
Declared income, Declared assets (SISA)
Here, the lender accepts the income and assets you present without the need for documentation. Small businesses often use a SISA loan if they have a large amount of income and assets that are difficult to document.
This will prove to be of great help for small business owners who keep all of their assets in a business account and don’t record their return with payslips, W-2 forms, or 1099 forms.
Declared income, assets verified (SIVA)
SIVA is more preferable if you cannot document a huge portion of your earnings, but have accessible resources that can occur.
A practical example of where SIVA would be suitable is for someone whose income comes primarily from tips or gratuities but still has a bank account in their name.
No income verification, assets verified (NIVA)
A retiree who withdraws money from his retirement accounts may have documented assets but not a substantial source of income. This way they can qualify for a NIVA loan.
No income verification, verified assets are for you if you have assets that you can verify but income cannot document. Hence, the lender only verifies your assets and does not consider your income.
No Pay Verification,
This type has the least number of requirements. No income, no jobs, no asset loans are best for people who may be able to provide documentation for neither their assets nor income.
A practical example would be if someone had a foreign company that holds their assets in a foreign bank and may not be able to provide any documentation acceptable to US lenders.
A NINJA loan would be very useful here to help skip document translation.
Which banks don’t offer document loans?
Some banks do not offer document loans using investors’ private equity to create these product offerings.
Several other banks and credit unions do not offer this type of loan as it is a bit difficult to package and sell to secondary market investors.
Additionally, these types of loans are available from lenders offering portfolio loan options and are not limited by the qualifying mortgage rules of government agencies such as Fannie Mae or Freddie Mac.
Lenders determine their conditions for qualifying based on their risk tolerance or investment requirements.
How can I qualify for a no document loan?
The requirements for these loans are much lower than for a regular mortgage loan, but you should be an active borrower. Having a credit score of around 720 will go a long way in convincing the lender to grant you the loan with little or no questions.
Even if everything else you should have is intact but the credit report is a bit iffy, it may not be the overall deciding factor.
Another important factor is your income. Having sufficient reserve money and resources will help speed up loan approval. They could serve as backup plans for making loan payments.
Lenders want to know that you have an alternative source of wealth to pay off the loans as they aim to minimize their risks in the game. So, the bigger the down payment you make, the better your chances are without document loans.
Pros and cons of No Doc loans
If you are considering a no-income verification mortgage, it is more advisable to study the pros and cons.
Benefits
- Unreliable income doesn’t necessarily affect you if you have other assets or cash flows to back up a regular mortgage payment.
- No documentation loan makes it easier to buy a home if you are self-employed or run a business.
VERSUS
- Interest rates on no-doc mortgages are significantly higher than those on more traditional mortgages. The idea is to mitigate the risk that the lender has to bear. So, if you can’t repay the loan, their losses are lower.
- Undocumented loans are not very easy to find as lenders are not readily available to offer that package all the time. As a result, your credit score and down payment had better both be impressive.
Conclusion
It is always easier to carry out a loan process without having to sweat over all the technicalities of the various documents that may be required.