When it comes to getting a loan, there’s a laundry list of documents needed to be approved. From tax returns to credit statements, your lender needs complete access to your financial history. But it wasn’t always the case.
Not too long ago, some lenders offered what are called “stated income loans.” More commonly referred to as “no-doc” or “low-doc” loans, these mortgages require no documentation or little documentation to verify the borrower’s income and assets. In return, the borrower, who must have very good credit, makes a big down payment—generally 25 percent or more—and pays a higher interest rate.
Given current market conditions and the sub-prime debacle, these loans have become more difficult to find, cost more, and are mainly funded by hard money lenders who do not conform to bank standards.
The loans are common among self-employed borrowers who have difficulty substantiating all of their income and service industry employees, such as waiters and hairstylists, whose pay is hard to pinpoint exactly. Borrowers also may use no-doc loans when they derive most of their income from commissions or when they have very complicated income structures.
In reality, calling the loans “no-doc” and “low-doc” are misnomers. Some “low-doc” loans require plenty of documentation, such as tax returns and profit-and-loss statements. Even “no-doc” loans require a credit report and a property appraisal.
Can you get a loan with minimal documentation these days? It’s unlikely–although not impossible—so don’t bank on it. Instead, focus on building your credit and saving money for your downpayment so that an ownership loan may be in your near future.
As a Member of the Top 5 in Real Estate Network®, I have a wealth of real estate and homeownership information that may be of help to you. Feel free to contact me any time to learn more about this important information, and be sure to forward this article on to any friends or family that may be interested as well.
Christina Tompkins Wright
Berkshire Hathaway HomeServices Hometown, REALTORS