What Is a No Doc Home Loan?
A no doc home loan is a type of mortgage loan in which very little paperwork is required to obtain the loan. Lenders agree to require less documentation of the individual's employment and income in exchange for a higher interest rate. Although no doc home loans are still available, it has become very difficult to obtain them due to strict requirements on lending. It is important to note that some lenders will exchange more information and documentation for lower interest rates, which equates to a much less expensive home loan.
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Features
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Home buyers who select not to provide detailed documentation to a lender may opt to consider a no doc or a low doc home loan. These individuals do not want to offer employment, income or credit-history information to the lender. Most scenarios, only those borrowers who are trustworthy, for some reason, are able to obtain a no doc loan, due to the risks to the lender. For example, an individual in a highly influential position may qualify.
Benefits
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The main benefit of a no-doc loan is that the borrower doesn't have to share private information. These individuals may need to have excellent credit scores. Usually, only minimal information is provided, such as the individual's Social Security number and property information. This means the home buyer does not have to verify their income or current employment status. Some home buyers may not want their financial history to be displayed. For example, borrowers may not want to allow others to know that an inheritance is in use to secure the loan.
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Costs
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Interest rates on no doc loans are generally far higher than those that are associated with full-documentation loans. In addition, those who obtain a low doc loan will qualify for a lower rate than those obtaining a strict no doc home loan. Fees may be higher than traditional loans as well. Most home loan lenders also require at least 20 percent down payment on these mortgages.
Risks
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With no doc home loans, the lender is at a high-risk level. Yet, the loan still has security by the value of the property. It is a secured loan. This means that if the home buyer defaults on the loan at some point down the line, the lender is able to recoup the costs by foreclosing on the property and selling it.
Obtaining
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To get a no doc home loan, individuals will need to find lenders offering these loans. The home buyer will generally need to put up a substantial down payment and have a high credit score to qualify for the loans. Many traditional mortgage lenders do not offer no doc or low doc loans, making them all the more difficult to obtain.
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