When you apply for most traditional mortgages, you’ll hand the lender a stack of documents to prove your financial health and show you can repay the loan. If your income is hard to document, a No Doc loan might appeal to you. No Doc loans, as the name implies, require little to no documentation from the borrower.
In lieu of pay stubs, W-2 forms and tax returns, lenders may accept bank statements as proof of income. They’ll also order a property appraisal to check the resale potential of the investment. Extra consumer protections make today’s No Doc loans a viable option for people with nontraditional income or those who have complicated tax returns.
No Doc loans make homeownership more accessible for nontraditional borrowers. Here are a few additional details:
- They make homeownership more accessible. If you previously couldn’t get a traditional mortgage due to strict documentation requirements, a No Doc loan might help you qualify for a loan. No income or employment information is required, basically just a credit score and an appraisal is all that’s needed.
- They’re faster to apply for. On a traditional mortgage, the underwriting process usually stretches across several weeks. But you could get to the closing table much quicker with a No Doc loan because there’s less to verify.
- Credit score and down payment requirements are higher. No Doc loans usually set minimum credit score requirements around 700. They also require a down payment of 20% of the home’s value.
Is a No Doc mortgage right for you?
No Doc mortgages exist for a reason, specifically if you can’t easily prove your earnings. Here are some situations in which you might consider a No Doc mortgage loan:
- You deducted large business expenses last year. As an entrepreneur, deducting expenses will generally lower your net income — which can potentially hurt your chances of mortgage approval. A No Doc mortgage might put you back in the running.
- You have an irregular income. Your income might fluctuate every month and even throughout the years if you work in certain industries, such as sales, or you’re self-employed. If you have money in the bank but your income is volatile, then a No Doc mortgage might be a good fit for you.
- You’re a real estate investor. With a No Doc loan, lenders might approve the mortgage based entirely on the value of the property. If the home you’re buying is an investment, then your expected rental income can help you get approved without any other assets or income documentation.
- You have a high net worth. If you no longer work because you’ve saved enough for retirement, inherited money, or won the lottery, then a No Doc mortgage loan may allow you to qualify based on your considerable assets.
Finding creative solutions for nontraditional borrowers to show they can afford a home is the majority of what we do at Qualified Home Loans. Contact your Loan Officer if you have any questions or need help with a pre-approval.