No-documentation
mortgages
Mortgage lenders typically ask for a lot of documentation
when you sign a loan agreement. They want to know where your
down payment is coming from, where you work, how much you make,
your other assets, and what other loans you’re carrying. This
helps them measure risk, and it helps them set an interest rate
that reflects that risk.
However, not every borrower can provide all the documentation
a lender requires. For example, some may have unconventional
jobs or self-employed income that is difficult to document.
Others are not comfortable sharing their financial information,
as they prefer to keep the details of their financial life
private. For these borrowers, no-documentation mortgages may be
an attractive choice.
The term "no-documentation" is misleading, since
all loans require some paperwork. However, these mortgages
require less documentation than traditional home loans and, as a
result, carry higher costs. In general, the less documentation
you provide, the higher the interest rate you’ll pay.
No-documentation loans may also require a larger down payment --
10 to 25 percent is typical.
There are three main categories of no-documentation
mortgages:
- NINA (no income, no asset) mortgages
How to qualify: NINA mortgages come the closest to
being truly no-documentation loans. When you apply for one,
you won’t need to supply information about your income,
employment or assets. All the lender will check is your
credit score and the assessed value of the property.
Interest rate: Because the lender is going on so
little, your credit score needs to be very high to obtain
this type of mortgage. If you are approved, your score will
be a big factor in setting the interest rate, which will
typically be 1 to 1.5 percent higher than a traditional
mortgage, but may be as much as 3 percent higher.
Who it may be right for: People with excellent
credit who do not want to disclose the details of their
holdings; people who rigorously guard their privacy.
- No-ratio mortgages
How to qualify: With a no-ratio mortgage you
don’t need to declare your income, so a lender can’t
calculate your debt-to-income ratio (your monthly loan
payments divided by your monthly income -- a ratio lenders
usually prefer to remain below 36 percent). Lenders will
still require other documentation, however, such as assets,
other debts and employment. They’ll often require that
you’ve been in the same job for two years.
Interest rate: You’ll pay a higher rate than you
would for a traditional loan, but not as high as with a
NINA.
Who it may be right for: People who would have
difficulty obtaining a traditional mortgage because of their
high debt-to-income ratio; people who have income that is
difficult to verify.
- Stated-income mortgages
How to qualify: With a stated-income mortgage, you
do not need to prove your income with pay stubs or W2 forms.
You must be able to document the nature of your employment
(again, two years in the same job is usually required), but
you can simply declare an income level that is reasonable
for your line of work.
Interest rate: Because you supply other
documentation and will be able to show a healthy
debt-to-income ratio, this type of mortgage carries only a
slightly higher rate than a traditional loan. About half a
percent is typical, though it varies with other factors such
as credit score, the size of the down payment and how stable
your income is.
Who it may be right for: Borrowers who have a good
income but find it hard to prove, such as self-employed
people with a lot of tax write-offs, or people who earn much
of their income in cash or tips.
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