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Don Taylor, Ph.D., CFA, CFP   Expert: Don Taylor, Ph.D., CFA, CFP
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No-doc/low-doc mortgages more expensive

Dear Dr. Don,
Are "no asset verification" mortgages a viable option these days and are they available? Are the interest rates prohibitive? I have everything I need to get a mortgage except $100,000 in an account.
-- Mark Mortgage

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Dear Mark,
Mortgage lenders typically verify employment, income, assets and credit with a conventional financing. The more information you provide about yourself, the easier it is for the lender to price the risk of extending you credit.

Some people who want to buy homes can't provide this information, so they try to get a no-doc or low-doc mortgage. The "no asset verification" mortgage you mention is usually packaged as a "no income/no assets" mortgage in which the lender verifies employment, but does not verify income or assets.

Here's an example of the range of information needed for different types of mortgage loan programs:

5 types of mortgage documentation

The last is sometimes known as a ninja loan: no income, no job and no assets. An alternate to a no-income/no-assets loan is a no-ratio loan where you verify your employment and income but the lender doesn't qualify you based on the front ratio or back ratio. The front ratio is PITI/gross income, with PITI representing the monthly principal, interest, taxes and insurance expense, while the back ratio considers the ratio of all debt payments to gross income.

No-doc and low-doc loans are still available, but they are more expensive in the current environment. Compare the interest rate on this type of loan to the interest rate on a conventional mortgage and make a determination as to whether you're willing to pay the higher rate to gain this type of financing.

Being able to use the mortgage interest deduction on your taxes reduces the effective difference in interest rates between a conventional mortgage and a no-doc/low-doc loan.

If you need a no-doc or low-doc loan, you should consider working with a mortgage broker. Look for an "Upfront Mortgage Broker," as described by Jack Guttentag in a feature, "Want your mortgage wholesale? Try an upfront broker," he wrote for Bankrate.

Bankrate.com's corrections policy -- Posted: April 25, 2008
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