Expert Insights: Is It True That Some Lenders Grant Loans Based on Very Little Documentation?
Not long ago, ‘stated income loans’ were offered abundantly. More commonly referred to as ‘no doc’ or ‘low-doc’ loans, these mortgages don’t need documentation or need very little documentation to verify the borrower’s income and assets. The borrower (who needs very good credit) will make a big down payment-about 25% or more-and pay a higher interest rate.
Given current market conditions and the sub-prime debacle, these loans have become more rare, are more expensive, and are mainly funded by hard money lenders who won’t conform to the standards of banks.
The loans are popular to self-employed borrowers who have difficulty substantiating all of their income and service industry employees, such as waiters and hair stylists, whose salary is not easily pinpointed. Borrowers also may use no-doc loans when they derive most of their income from commissions or when they have very complex structures of income.
In reality, calling the loans ‘no-doc’ and ‘low-doc’ is misleading. Some ‘low-doc’ loans require quite a bit of documentation, such as tax returns and profit-and-loss statements. Even so called ‘no-doc’ loans require documentation, such as a credit report and a property appraisal.