What are no-doc loans?
No-doc or low-doc home loans allow a borrower to obtain a mortgage without providing traditional income-verification documents to a lender. Rather than reviewing a borrower’s W-2 forms, tax returns and pay stubs, a lender may use bank statements to verify income.
No-doc mortgage loans have evolved in the wake of the housing crisis of the 2000s, when a wave of no-doc borrowers became delinquent or defaulted on their loans. The federal government now requires these types of programs to include more documentation and show that the borrower is able to repay the loan.
A no-doc verification mortgage may fall under multiple niche categories of lending on both owner-occupied and non-owner-occupied properties:
- No income, no asset (NINA) loans typically require a lender to verify an applicant’s employment status, but there are no income- or asset-verification requirements included in the loan approval process.
- No income, verified asset (NIVA) loans do not require the applicant to state their income. The stated income loan is based on a lender review of other existing assets, such as retirement, savings or investment accounts.
- Stated income, stated asset (SISA) loans allow a borrower to state their income on an application without having the lender verify the information. SISA loans are no longer available for owner-occupied properties after the passage of the Dodd-Frank Act in 2010, but they are allowed on investment-property purchases for buyers who plan to rent the home long term or turn a profit through a fix-and-flip rehabilitation.
- Stated income, verified asset (SIVA) loans require a lender to verify financial information on the application, which is typically done through a review of six to 24 months of bank statements.
What are common terms for no-doc loans?
No-documentation mortgage lenders use different qualification standards than those for conventional or government loan programs. Because no-doc loans are inherently riskier than other loan types, lenders will charge more and demand more from the borrower.
A minimum FICO credit score of 700, for example, may be needed for the typical no-doc mortgage. This is considerably higher than the 620 minimum score needed for many conventional loans or the required threshold of 580 for Federal Housing Administration programs. These types of loans also have higher downpayment provisions: While a conventional or government loan typically involves an upfront payment of 20% or less of the purchase price, a no-documentation loan may require 30% or more.
Interest rates for no-doc or low-doc mortgages also tend to be much higher than conventional loans (often in the range of 3 to 5 percentage points). Rates can vary based on the size of the downpayment, credit score, assets and other factors.
How can a borrower get a no-doc mortgage?
Depending on the property type in question, originators can use Scotsman Guide’s Lender Search Engines to locate no-documentation mortgage lenders.
These types of loans are not qualified mortgages and seldom fall into the non-QM category. However, in some cases, LenderSearch.com can connect you to wholesale lenders with an array of nonprime and jumbo loan programs, which may suit borrowers who are purchasing a primary residence or second home. These borrowers may have nontraditional income sources, require a speedier transaction or need a larger loan than conventional programs will provide.
You can find no doc hard money lenders nationwide by using Lender Search, which connects you to lenders with short-term products tailored to real estate investors. These lenders are mainly interested in the value of the asset and the ability of the borrower to contribute additional equity. To find lenders that can fund these mortgages, open the “advanced search” fields and select all of the following options under the “income verification” that apply:
- No Income, no asset verification
- No income verification, verified assets
- Stated income, verified assets
- One month bank statements
- 2-11 months’ bank statements
- 12 months’ bank statements
- 24 months’ bank statements
- W-2 wage earner (0-2 years)
- W-2 wage earner (2+ years)
