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No-Documentation Mortgages

At first there was mortgage "pre-qualification." That practice has been largely discredited, simply because of the willingness of so many mortgage brokers or lenders to issue "prequalification" letters based on little evidence or without checking on the potential borrower\'s financial details. These days, many large developers will conduct their own credit check before selling to a potential homebuyer.

During the height of the home buying and refinancing boom, "no-doc" mortgages became a marketing scheme. The advertisements promised mortgages without the tiresome paperwork involved in the borrower establishing income, existing debt, and so forth. These loans remain in existence, although as the foreclosure rate begins to climb they may become hard to find. And no documentation loans are another example of the axiom that "If something looks too good to be true, it probably is."

There are a couple of models for the no-doc loan. One is called the "no income, no asset" (NINA) loan, which is as close as you can get to a true no documentation mortgage. Your application won\'t require information on your income, employment or assets. The lender will base his decision on your credit score and the value of the property. What is required is an extremely high credit score. That may get you approval on a loan of this type and will also be the determining factor in the mortgage interest rate.

Because of the lack of documentation however, the interest rate on the loan will be one to one and a half percent higher than it would be on a loan to someone with your credit rating pursuing a traditional mortgage. The only person for whom a loan of this type makes sense is someone who feels the need to zealously guard their personal financial details or who, for personal reasons, feels that the rigorous questioning that accompanies a loan application is a violation of privacy. Another example of a no-doc loan is the "no ratio" mortgage. The important piece of information that is withheld in this model is the borrower\'s income. That precludes the lender from calculating a debt-to-income ratio. Beyond that, however, the lender is going to want to know about other aspects of the borrower\'s financial situation. He will be required to reveal assets, employment and existing debt.

Many lenders will also require some job security, such as proof that you\'ve held the same job for at least two years. The no-ration mortgage will also carry a higher interest rate than a traditional note, although not as high as the NINA. These loans make sense for people who might have difficulty verifying income, or who are carrying a lot of debt.

There is also the "stated income" mortgage, which requires that the borrower declare an income but doesn\'t have to document it with pay stubs or W2s. The nature of the work and proof of a period of employment is required, but proof of salary level is not. This loan model will provide the lender to inspect the debt-to- (declared) income ratio and for that reason; the interest rate will be only moderately higher than on a traditional mortgage.

However once again, as with all mortgages, the borrower\'s credit score will play a prominent role. These loans are also good for people who have difficulty proving income level, such as individuals who make much of their income in tips or other cash payments.

G. Mundy is a freelance writer for the nations largest mortgage lender, bad credit mortgage & refinance website. For more information, please visit Mortgage Lenders Plus.com

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