No documentation mortgage loans — also called no income verification or stated income mortgages — were the subject of much controversy when the housing bubble burst. This is because these loans were prolific, and they caused many individuals to overextend themselves. However, they’re still suitable if you’ve had an issue getting traditional financing. Read below as our team at Titan Funding in Boca Raton shares more about no documentation mortgage loans and whether it’s the right loan for you.
What Is a No Documentation Mortgage Loan?
As the name suggests, a no documentation mortgage loan means you don’t need to provide documentation showing proof of income, such as pay stubs, tax returns, or W-2 forms. The lender will use other factors, such as bank statements, to qualify you. You’ll still need to provide documentation showing you can repay the loan. For this reason, they’re also known as low documentation loans. Some view them negatively because numerous borrowers in the early 2000s received loans based on what they said their income was, but many inflated their numbers and purchased properties they couldn’t afford.
While today’s loans are similar, they’ve changed quite a bit. After many foreclosures on people who got a mortgage by overstating their income, the federal government brought in more stringent regulations for loan approval. A no documentation mortgage loan usually has a higher interest rate and requires a larger down payment — two aspects that weren’t present before. Essentially, lenders need you to show, through reliable records from a third party, such as bank and investment account statements, that you have sufficient means to repay the loan.
Who Is a Good Candidate for a No Documentation Mortgage Loan?
A no documentation mortgage loan is probably not the best option if you have a steady job that provides regular paychecks. But it could be a perfect fit if you’re an independent contractor, freelancer, entrepreneur, or small business owner whose income stream is constantly in flux. If you fit into one of these categories, you can likely afford more than your tax return income might indicate because of the various tax deductions you’re eligible for based on your business. The amount you deposit is often higher than what you list on your tax return.
Another suitable group is real estate investors. If you own rental property, you may only show a small amount on the books once you apply depreciation. If you have ample assets but little to no income, for example, as a retiree, or you own a business and have a good credit score but much of your assets are held in the company, you’d be a good candidate for a no documentation mortgage loan.
What Are the Types of No Documentation Mortgage Loan?
There are four main types of no documentation mortgage loans, and each have slightly different requirements. First, we have the stated-income, stated-asset loan, which is close to being a genuine no documentation mortgage loan. This means the lender relies upon the income and assets you, as the borrower, state. As such, lenders only offer this loan for investment properties that you can show as profitable. The second type is a stated-income, verified-assets loan, also called a bank statement loan, which allows you to state your income but requires you to provide proof of the assets you hold.
The third loan type is the no-income, verified-assets loan. This is similar to the previous one but income isn’t a determining factor in the loan application process. Finally, there’s the no-income, no-assets loan, where the lender doesn’t require you to state your income and assets. This loan type is exclusively for real estate investors purchasing properties with good rental income potential.
What Are the Requirements for a No Documentation Mortgage Loan?
With additional risk comes a higher credit score requirement, interest rate, and down payment. Credit score minimums are usually around 700 or more for a no documentation mortgage loan, which is a bit higher than traditional loans that typically require a credit score of 580 or other finance types where your score can be as low as 500. Interest rates are also often higher, in the range of 1% to 5% above market rates.
The down payment for a conventional loan is about 3%, and for a Federal Housing Administration loan, it’s about 3.5%. A no documentation mortgage loan is much higher at 20%. Finally, depending on the type of loan you’re getting, you may have to offer documentation on your various assets and investments.
Is a No Documentation Mortgage Loan the Right Choice for You?
Sometimes, no documentation mortgage loan financing is the best and possibly the only option. It’s a logical choice if you have an income stream that isn’t easily verifiable, a tax return that’s too complex, or an income that’s too much of a hassle to document.
If you’re a real estate investor, have a lot of business write-offs, experience sporadic income because of seasonal work, have multiple tax returns, or have wealth but aren’t working, a no documentation mortgage loan is an excellent option to consider. And if you’re in a position where time is of the essence — for example, you need to quickly capitalize on an income-producing property or lock down a highly sought residential property — the no documentation mortgage loan process tends to be much faster.
If you think a no documentation mortgage loan is right for you and you’re ready to get started, reach out to the team at Titan Funding. Our experts can discuss no documentation mortgage loan options, answer questions, and help you decide which loan is best for your situation. We can also review other investment options through Titan Funding to determine the best course of action.
Our Titan Funding team is ready to help you from 9 a.m. to 6 p.m., Monday through Friday. You can reach us at 855-912-8313 or by completing our secure online form at a time that suits you, 24 hours a day, seven days a week. You can find us at 2701 NW Boca Raton Blvd., Suite 105, in Boca Raton, Florida.
FAQ for No-Documentation Mortgage Loans
What are the main types of no documentation mortgage loans available?
The main types are stated-income, stated-asset; stated-income, verified-assets; no-income, verified-assets; and no-income, no-assets loans. Each has distinct requirements based on income and asset verification.
When is a no documentation mortgage loan a logical choice for borrowers?
Borrowers with complex tax returns, multiple sources of income, or income streams that are hard to verify may find no documentation loans to be a suitable option.
What are the credit score, interest rate, and down payment requirements for a no documentation mortgage loan?
Credit scores usually need to be around 700 or higher, interest rates can be 1% to 5% above market rates, and the down payment is typically higher at 20% compared to conventional loans.