and no-doc mortgages,
you pay a little more, say a lot less
to self-employed masons and self-made millionaires: there's no need
to panic when it comes to buying a home.
Lenders want to make a buck from anyone they
can, including people who either can't document a steady income
stream or choose not to for the sake of privacy or simplicity. In
that spirit, many offer tailored mortgages that don't require borrowers
to produce forms showing how rich they are.
And today, they're easier than ever to apply
for and obtain.
"I have like 100 programs, so I can just about
do anything," says Deborah M. Myers, a senior loan officer in CrossLand
Mortgage Corp.'s Tampa, Fla., branch. "I have the ability to
actually underwrite the loan on my laptop, and for some self-employed
people, the computer doesn't even ask for tax returns.
"It's amazing how little information is required."
One of many mortgages designed for people with
special needs, no-income verification loans and their brethren allow
borrowers to forego the time and effort of culling tax records,
bank statements, brokerage reports and other forms for their lenders.
Some of these "low-doc" or "no-doc" mortgages allow customers to
simply "state" their income by filling in a blank on the application.
Others go so far as to not require any information about income,
assets or even credit. Each step down the ladder requires the borrower
to put either more money down or accept a higher interest rate.
Yet the penalties aren't as harsh as they once were and the application
process is much less painful than before.
"You don't have to offer your firstborn as collateral
anymore," says Tim Coffman, president of Northern Lakes Mortgage
Corp. in Hudson, Ohio. "The rates, they don't with every little
thing give you a markup, and finally, very recently in the last
two to three years, they have finally allowed your credit to carry
you. The higher score, the more desirable you are.
"Now, it's very much more relaxed," he adds.
So who might want to look into low-doc products?
Surprisingly, lenders say, a wide range of people. Self-employed
businessmen and women who don't have the two-year track record required
for conventional loans may need them. Active stock traders who don't
want to share their financial history and complicated tax returns
with a lender fall into this category as well.
the conventional rules
Then there are more complicated situations, according to Coffman.
Say a landlord owns an apartment building that generates a certain
amount of rental income. A bank's underwriting guidelines might
say that, no matter what, 50 percent of a landlord borrower's income
can't be used to qualify for a mortgage because it's assumed that
money goes toward maintenance. If the landlord acts as his own handyman,
however, he might spend only 30 percent of that money for upkeep.
But the bank's underwriting standards don't make exceptions, so
he's out of luck.
"Somebody that has a very, very complicated
financial situation who does not want to verify their income ...
this is a really easy way for them to document the file," says James
W. Kemish, president of Power
Mortgage Corp. in Delray Beach, Fla.
"Some people in this area are intensely private,"
he adds. "You've got people who make a living investing in the
stock market, trading stocks or day trading. Their financial profile
is so complex they simply would never consider applying for a regular
Fannie Mae loan."
more secrecy, the higher the cost
The cost of avoiding the financial microscope depends on the degree
of secrecy or leniency a borrower needs. A stated-income loan that
still involves verification of assets, for example, might not have
a much higher rate or stricter qualifying standards than its conventional
counterpart. The most lenient low-doc mortgages, on the other hand,
"The true 'no-doc' is the ultimate of the easy
loan products," Kemish says. "You do not state income, you do not
state employment, you do not state assets, you give no bank accounts
or bank account numbers, no bank balances, you don't have to source
the funds for your down payment and ... you don't even have to say
that you have a job."
The interest rate premium for a basic no-income-verification
loan starts at about three-eighths of a percentage point on average,
he says, while the full no-doc loan would have a rate about 1 percentage
point higher than a conventional mortgage with a comparable term.
Since a 30-year fixed rate loan with no points went for about 7.625
or 7.75 in mid-June, that means somebody would have had to pay interest
at a rate as high as 8.75 percent to get the most lenient mortgage.
The maximum allowable loan-to-value
ratio, meanwhile, often depends on a person's credit, or "FICO,"
score. While a score of 620 is considered decent and 660 is very
good, for example, someone would need a 700 or better to get a 90
percent loan-to-value no-income-verification loan at CrossLand,
according to Myers, the Tampa loan officer.
leery of big leaps
The amount of "payment shock" involved could impact the amount a
person can borrow, too. The term refers to the difference between
someone's current housing payment and the anticipated principal,
interest, taxes and insurance payment a new mortgage would require.
So, while Power Mortgage offers a no-doc mortgage with a loan-to-value
ratio of as much as 95 percent, a borrower who would have to go
from paying $1,100 a month in rent to paying $3,200 for a new home
Because there are many variations on these types
of loans, experts say consumers may want to use brokers rather than
lenders when shopping for no-income-verification mortgages. That's
because mortgage brokers can sift through several available options
and find a program that meets specific asset or income requirements.
Some lenders such as CrossLand also can search alternative financing
channels to find good deals.
Regardless of how they proceed, however, borrowers
should make sure their needs are worth the cost of getting a low-doc