If you are struggling to find a traditional mortgage loan because you cannot document enough of your income to qualify, you could benefit from a no doc or low doc mortgage loan. Here is what you need to know about this unconventional type of mortgage loan.
Traditional mortgage lenders require documentation of income when applying for a loan. This documentation typically comes in the form of pay stubs from your employer and bank statements showing your assets. Documenting income is difficult for some individuals who or self employed or are paid on a commission basis; these individuals could benefit from no doc mortgage loans.
No doc mortgage loans differ from traditional mortgages in that they require much less documentation of income and assets to qualify. The lender assumes a higher risk in lending; this risk is passed on to the borrower in the form of higher interest rates and lender fees. The no doc mortgage lender may require a higher down payment or points paid to qualify for this loan. No doc mortgages fall into three categories: No Income/Asset loans, No Ratio loans, and Stated Income loans.
Income/Asset loans do not require information about your income, assets, or employment status. The mortgage lender will rely on your credit score and the appraised value of the home to make a decision on your loan application. If your application is approved you can expect your interest rate to be as much as 3% higher. These loans are ideal for individuals with superb credit.
Ratio loans do not require you to state your income; because of this the lender does not look at your debt to income ratio. The lender will require documentation of your assets, debts, and employment status to approve this loan. The interest rate you receive for a no ratio loan is higher than a traditional mortgage, but not as high as a income/asset no doc mortgage loan.
Stated income mortgages enable you to declare your income without providing documentation. The only requirement for this loan is that you document your employment history and state a reasonable income for the type of work you do. The lender will use your assets and debt-to-income ratio to qualify you for the loan; because of this the interest rate you can expect to pay is typically only half of point higher than traditional mortgage financing. You will need excellent credit and a sizeable down payment or up front points to qualify. This type of mortgage is ideal for the self-employed.
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Louie Latour specializes in showing homeowners how to avoid common mortgage mistakes and predatory lenders. For a free copy of "Mortgage Refinancing - What You Need to Know," which teaches strategies to find the best mortgage and save thousands of dollars in the process, visit Refiadvisor.com.
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