Explaining "No Doc" Loans

As complicated as the mortgage process can be, the general rule of how a lender arrives at your interest rate is simple. The more of the required documentation you provide, the more likely you are to receive a lower rate. When the lender sees tangible evidence of your employment, assets and credit history, it considers you less of a risk, and is therefore willing to offer you a lower rate of interest. Basically, the more you show, the less dough you spend on interest.

You may be aware that suspect credit or lower incomes cause many buyers to pursue this course of action. What you may not realize is that many buyers CHOOSE this option despite viable credit and substantial income. Privacy and convenience are big factors. If you want to speed the process along, or don’t want your whole life presented to a mortgage lender, and don’t mind paying a higher interest rate in return, this option might be worth your while.

For these reasons, no doc loans have become increasingly popular. Think they might be what you are after? Let’s find out. Below, Florida Home Loan has put together a brief rundown of the three main types of no doc loans, and what kind of buyers they are most appropriate for.

1. Standard No Doc Loans
Basic no doc loans require the least documentation and are for buyers who generally have good credit histories. The buyer provides minimal information - his/her name and social security number, plus any data regarding the property about to be purchased - and everything else is up to the lender. Contrast that to the list of required mortgage documents that apply to normal loans. People who desire maximum privacy or who want to get a loan closed quickly with no hassle frequently opt for no doc loans.

2. Stated Income (or “Low Doc”) Loans
As their name implies, low doc loans require a lower level of documentation, but less than you would be asked for in a traditional situation. In this case you state your income, but do not provide extensive verification. Henceforth, stated income / low doc loans are frequently used by applicants whose income is derived from a cash or commission basis rather than from salary.

3. No Ratio Loans
By ratio, we mean debt-to-income (DTI) ratio, or the amount that you will owe on your loan and other debts each month versus how much you will earn over that time period. If you don’t want a lender to know your income, but have substantial assets and good credit, this option enables you to obtain a mortgage without the lender considering your DTI. This is another way to get a loan done quickly without worrying that your income will hurt you or cause logistical issues.

Those are just the basics, however.

Remeber that every lender is different, and may mix and match the above criteria (as well as give it a different name). Generally, the above breakdown should give you a good idea of what’s out there. If you understand the basic concepts, you’ll know what you are getting into, even if a lender calls their loan or program something different. Some common, self-explanatory names for variations of no doc loans are listed below (get ready for acronym madness):

• Stated Income / Stated Assets (SISA)
• Stated Income / Verified Assets (SIVA)
• No Income / No Assets (NINA)
• No Ratio / No Income Verified Assets (NIVA)
• Verified Income / No Assets (VINA)
• Verified income / Stated Assets (VISA)

Additional things to take into consideration before choosing any of the above:

• Not only will your interest rate be higher, but a higher down payment may be required to avoid paying additional insurance.
• As we stated above, the terms / names used by different lenders may not all conform to the same definition(s). Get the details verified before you commit!
• The lender is taking a higher risk by offering these no doc loans, so while the list of requirements will be substantially smaller, be ready to provide any certified document they ask for.
• You be the judge. The advantages and drawbacks are clear. Weigh the options and make the decision that’s best for you without rushing into it.

If you think no doc loans might be for you, but have additional questions, contact Florida Home Loan today for a free discussion of your options. Good luck!