In order to assist borrowers in difficult financial situations who want to purchase or refinance a home, an increasing number of lenders are providing no-doc mortgage options. A no-doc mortgage, also known as a stated income loan or a no-income verification mortgage, could speed up the closing of your home loan, particularly if your tax returns are complicated.
Today’s no-income-verification mortgages come with extra consumer protections, making them a viable alternative to traditional home loans.
The short answer is: yes, no-doc mortgages still exist in 2023. But since the 2008 housing crisis, they’re less common than they formerly were, and the regulations governing them have changed considerably.
In this guide, we’ll dive deep into the world of no-doc mortgages, covering everything you need to know:
- What are no-doc mortgages?
- How do no-doc mortgages work?
- Who qualifies for a no-doc mortgage?
- What are the different types of no-doc mortgages?
- Are no-doc mortgages safe?
- Alternatives to no-doc mortgages
What are No-Doc Mortgages?
A no-doc mortgage is a type of home loan that doesn’t require you to provide the usual documentation to verify your income and assets, such as pay stubs, tax returns, or bank statements. This can be a major advantage for self-employed individuals, freelancers, or anyone who has difficulty documenting their income.
However, it’s important to note that no-doc doesn’t mean no documentation. Even so, you will still need to show that you have the financial means to pay back the loan. Examples of this include assets that are easily convertible into cash or bank statements with regular deposits.
How Do No-Doc Mortgages Work?
Lenders of no-doc mortgages evaluate your ability to repay the loan using a variety of techniques. These methods may include:
- Bank statement loans: These loans rely on your bank statements to verify your income. The lender will typically look at 12-24 months of bank statements to calculate your average monthly income.
- Asset-based loans: These loans are based on the value of your assets, such as stocks, bonds, or real estate. The lender will use the value of your assets to determine how much you can borrow.
- No-income, no-asset loans (NINAs): These loans are only available for investment properties. The lender will base your loan approval on the projected rental income of the property.
Who Qualifies for a No-Doc Mortgage?
No-doc mortgages are typically available to borrowers with good credit scores, high net worth, and stable income sources. You’ll also need to make a significant down payment, usually at least 20%.
Here are some specific scenarios where a no-doc mortgage might be a good option:
- Self-employed individuals: If you’re self-employed, it can be difficult to document your income using traditional methods. A no-doc mortgage can allow you to qualify for a home loan without having to provide tax returns or pay stubs.
- Freelancers: Freelancers often have irregular income, which can make it difficult to qualify for a traditional mortgage. A no-doc mortgage can be a good option for freelancers who have a consistent stream of income.
- High-net-worth individuals: If you have a high net worth, you may be able to qualify for a no-doc mortgage based on your assets. This can be a good option if you don’t want to provide income documentation or if you have a low credit score.
What Are the Different Types of No-Doc Mortgages?
There are several different types of no-doc mortgages available, including:
- Stated-income loans: These loans allow you to state your income on the loan application without providing any documentation. However, stated-income loans are becoming increasingly rare.
- SISA loans: Stated-income, stated-asset (SISA) loans allow you to state both your income and assets without providing documentation. However, SISA loans are also becoming less common.
- SIVA loans: Stated-income, verified-assets (SIVA) loans allow you to state your income but require you to provide documentation to verify your assets.
- NIVA loans: No-income, verified-assets (NIVA) loans do not require you to provide income documentation but do require you to provide documentation to verify your assets.
- NINA loans: No-income, no-asset (NINA) loans are only available for investment properties. These loans are based on the projected rental income of the property.
Are No-Doc Mortgages Safe?
For qualified borrowers, no-doc mortgages can be a good option, but it’s important to understand the risks. Compared to conventional mortgages, these loans usually have higher interest rates and fees, and qualifying for them may be more challenging.
It’s also important to make sure you’re working with a reputable lender. There are some unscrupulous lenders who may try to take advantage of borrowers who are looking for no-doc mortgages
Alternatives to No-Doc Mortgages
If you’re not sure if a no-doc mortgage is right for you, there are several alternatives to consider, including:
- Traditional mortgages: Traditional mortgages require you to provide income and asset documentation, but they typically have lower interest rates and fees than no-doc mortgages.
- FHA loans: FHA loans are government-backed loans that require a lower down payment than traditional mortgages. They may be a good option for borrowers with lower credit scores.
- VA loans: VA loans are available to active-duty military personnel, veterans, and surviving spouses. They do not require a down payment and typically have lower interest rates than traditional mortgages.
- USDA loans: USDA loans are available to borrowers who are buying a home in a rural area. They do not require a down payment and typically have lower interest rates than traditional mortgages.
For qualified borrowers, no-doc mortgages can be a good option, but it’s important to be aware of the risks. Do your research and compare rates from several lenders before applying for a no-doc mortgage. Additionally, confirm that the lender you’re dealing with is respectable and considers your best interests.
Frequently Asked Questions
Q: Are no-doc mortgages still legal?
A: Yes, no-doc mortgages are still legal in 2023. However, the rules surrounding them have changed since the 2008 housing crisis.
Q: What are the requirements for a no-doc mortgage?
A: The requirements for a no-doc mortgage vary depending on the lender. However, you will typically need to have a good credit score, a high net worth, and a stable income source. You will also need to make a significant down payment.
Q: What are the interest rates for no-doc mortgages?
A: The interest rates for no-doc mortgages are typically higher than the interest rates for traditional mortgages.
Q: Are no-doc mortgages a good idea?
A: No-doc mortgages can be a good option for borrowers who qualify, but it’s important to understand the risks involved. Before you apply for a no-doc mortgage, make sure you shop around and compare rates from different lenders. You should also make sure you’re working with a reputable lender who has your best interests at heart.
No-income, no asset loans
Currently, you can only apply for a no-income, no-asset (NINA) loan if you’re purchasing an investment property with sufficient income to pay the mortgage each month. Also known as debt-service ratio loans, they don’t need proof of income or assets if the monthly rent for the property is equal to or slightly more than the monthly payment.
Who they’re best for: Real estate investors with cash for high down payments who want to quickly build a portfolio of investment properties.
When should you get a no-income-verification mortgage?
If you have complicated tax returns, find it difficult to verify your monthly income, or simply don’t want to deal with the burden of supplying a ton of proof of income, you should think about applying for a no-income verification loan.
Since an hourly or salaried wage does not guarantee self-employed income, lenders are particularly careful to confirm a borrower’s history of earnings. They concentrate on the revenue stream’s consistency, the company’s financial soundness, and even the level of demand for the goods or services the business provides.
You may want to consider a no-income-verification loan in the following scenarios:
- You had business expense write-offs last year. Purchases of equipment or commercial real estate are examples of large expense write-offs that could reduce your net income. Lenders evaluate a two-year history when averaging self-employed income. The low income year brought on by the write-off may have an impact on your chances of getting approved for a conventional mortgage.
- Your income declined recently. If your income decreases, traditional lenders may become concerned, particularly if you work for yourself. You can obtain a mortgage with a no-doc home loan program even if your tax returns don’t reflect your declining income.
- You file multiple tax returns. Your tax returns are likely to be more complicated the more income streams you have. Therefore, a mortgage with no tax return could be a good substitute.
- You have an irregular income. Seasonal contractors and freelancers may get one-time cash bonuses every few months. If a traditional lender is unable to determine your income, a no-documentation mortgage lender might be able to assist.
- You’re a real estate investor. The only mortgages for which the ability to repay is applicable are those for primary and secondary homes. With no additional asset or income documentation required, investors may be eligible for a no-doc home loan program based only on the projected rent for the property they are purchasing.
- You have a high net worth but no job. If you have a high net worth and no longer need to work, you may be able to turn your assets into qualifying income for a no-doc mortgage loan.