When it comes to personal and home loans, you can get easily overwhelmed because there are so many different options. Some choices for these loans are specifically designed for certain people. Personal and home no doc loans fall into this group. People who choose these loans often want to maintain a high level of privacy; they do not want all of their personal lives to be put under a microscope by financing companies.
What is a No Doc Loan?
A no doc loan, otherwise known as a no documentation loan, is a simple concept to understand. It means that you do not need to provide documentation to qualify for financing. You simply provide your Social Security number, name, and property details (for home loans). The lending company uses the stated income amount you provide and your credit score. All of the documentation you would provide to qualify for a normal loan, like income verification and references, are not required in this case.
Personal Loans
Personal no doc loans are one type of personal loan. In this loan, the lender does not have the same documentation that proves your employment and your income amount. If you have an off the books job, like a handyman, you would not have proof of your income. You could also own a small business and do not want your business profits counted as a means of repaying the loan.
High Risk Borrowers
Generally, a high risk borrower is someone with bad credit or an unstable employment history. No doc loans are good for high risk borrowers. Because you are not providing your employment history, you can qualify easier than another type of personal loan. Your exact level of risk depends on your employment history and your credit score. Your credit score, in particular, plays a large role in determining the interest rate that the loan will have.
Self-employed
Self-employment often means that you cannot always prove the income you make. To meet the requirements of a regular personal loan, you would have to prove all of your income. In many cases, this would mean that you would have to track down each and every customer within the time period needed and get written proof from them about what you charged.
Mortgage Loans
Mortgage lenders are demanding when it comes to applying for a loan to buy a home. With a typical mortgage application, your whole life is scrutinized and must be documented. Lenders do not typically advertise that no doc loans can be used to buy properties, but actually there are several types of these loans that can be used for obtaining a mortgage.
No income/No asset
This type of loan qualifies as a low doc loan. You will not need to provide income verification documents, but you will need to state the type of job that you have and how long you have been at your current place of employment. You will also need a property appraisal, the down payment for the loan, and a copy of your credit report. If you require a high level of privacy, this would be the type of no documentation loan that you should choose.
Out of all the types of no doc loans available, this one actually requires the least. There is a lot, however, that rides on your credit score. A better score means that you will need less documentation. Your employment length will also affect your approval; if you have been at the same job for a minimum of two years you should be fine.
Stated Income
Stated income no documentation loans for mortgages are ideal for a specific group. If you are self-employed or at least one third of your income is based on tips or commissions, you can state your income through a profit and loss sheet, bank statement, or tax return. These are acceptable alternatives because your income is not consistently the same as it would be if you had employment with hourly or salary wages.
These no doc loans are generally tailored for people who make the income they state, but the amount that shows on tax returns is much lower. People often claim their exact income but tax deductions reduce this amount. The ending result is what appears as a lower income.
No-Ratio
A no-ratio no documentation loan is the ideal choice for people who have a substantial income and/or an excellent credit rating but want more privacy. Any assets you have such as savings, real estate, stocks, or investments can be used as an acceptable alternative to proof of income. Widow, widowers, or retired people benefit the most from this type of loan.
With these types of no doc loans, income is not stated at all. The other loans require you to provide a list of your debts so your debt to income ratio can be compared, but this loan does not do that. Credit scores are a huge factor. If you are credit worthy, you would qualify for this loan as long as you have a great history with making money.
Qualifications
Qualifying for a no documentation loan can be simple or difficult. There are a lot of factors that are considered. Most importantly, your credit needs to be excellent. Your credit report will provide lenders with a detailed history of your payments.
Your credit score should be between 620 and 660. The report should show at least five current accounts. If you have a previous foreclosure or bankruptcy, it has to be at least three years old and you must have reestablished positive credit. If you have any judgments, you must pay those before the loan can be closed.
No doc loans, despite their deceptive name, are not completely free from all documentation requirements. Minimally, you will need to provide proof of identity and your Social Security number. The type of no doc loan you choose will affect just what documentation you will need to provide. For many borrowers, it is worth having a higher interest rate in the end.
