What is a No-Doc Loan?

Written by Ashley Sutphin Posted On Tuesday, 20 February 2024 00:00

Before the 2008 housing crash, it was somewhat common for people to get stated income loans. These were mortgages where a lender didn’t verify the borrower's income by looking at their income tax returns, W-2 records, or pay stubs. A lender would simply ask a borrower to state their income, and they were taken at their word.

Stated income loans were theoretically for self-employed borrowers, but they started being extended more and more to subprime borrowers. The lack of verification for someone’s income made these loans high fraud targets.

After the housing crash, stated income loans were done away with.

Now, to get a mortgage, you have to show your income through different methods, including showing your tax records.

This still gets tricky for self-employed borrowers.

As a self-employed borrower, you may show a much lower income than the reality because of deductions you take advantage of on your taxes. These deductions can be legitimate, but they're problematic if you decide to apply for a mortgage.

Some self-employed borrowers look for no-doc loans, which aren’t the same as stated-income loans.

We talk more about them below.

An Overview of No-Doc Loans

A no-documentation mortgage loan doesn’t mean that you show no documents. However, you might show your bank statements instead of your tax returns or pay stubs as proof of income.

With this type of loan, the lender is also likely to order a property appraisal, which is how they determine its potential resale value.

The upside of this type of loan is that they make homeownership accessible for someone who might not qualify for a traditional mortgage. They can also be faster to apply for because underwriting takes several weeks on traditional mortgages. There’s less verification with a no-doc loan.

There are some downsides, though.

First, it’s rare to find a financial institution that offers no-doc or low-doc loans.

The loan terms are also going to be less favorable. You might see the rates on these loans being as much as three percentage points higher than those on conventional loans, depending on your assets, credit score, and the size of your down payment.

You’ll need a credit score of at least 700 to qualify for these loans in most cases, and you might have to make a down payment as high as 30%.

Who is This Type of Mortgage Right For?

There’s a reason these loans exist.

It might be right for you if you deducted a large amount of business expenses in the previous year. When you’re an entrepreneur, deducting expenses lowers your net income, but you might be able to qualify if you go outside the confines of traditional mortgages.

Another reason to consider these loans is if you have an irregular income that fluctuates quite a bit depending on your business.

Some real estate investors will get these types of loans, and then the expected rental income on the property can help you get approved without other documentation or asset verification.

High-net-worth individuals can use no-doc mortgages to qualify based on their assets.

Types of No-Doc Loans

There are a few subtypes of these mortgages.

One is called SISA, which stands for Stated Income, Stated Assets. When you apply for this type of loan, you disclose your annual income and assets. The lender accepts the numbers you’re providing. After the Dodd-Frank Act passed, however, these loans became very restricted, and for owner-occupied properties, they're no longer available.

Another type is SIVA—Stated Income, Verified Assets. You put your income on your application, but your lender goes through verification with your assets. You might have to show anywhere from six to 24 months of bank statements.

NIVA loans are No Income Verification, Verified Assets. These loans don’t require a borrower to disclose their income at all. Instead, a lender verifies based on their assets. Someone who’s a retiree or lives off investment accounts might use this type of loan.

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