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- A no-doc mortgage offers a way to get a home loan without some of the income and employment verification paperwork lenders traditionally require, like W-2s and pay stubs.
- Post the Great Recession, no-doc mortgage loans are much harder to come by.
- No-doc loans often require higher credit scores and larger down payments than conventional mortgages do.
Applying for a mortgage involves a small mountain of paperwork, including bank and tax statements, pay stubs and proof of employment. These documents help answer many of the questions a mortgage lender will ask in order to qualify you for a loan.
If your income is irregular, though, or you lack some of the standard documents of a typical full-time employee, you might not be able to provide answers to all of those questions. In this case, you could be a candidate for a no-doc (short for “no documentation”) mortgage — a type of loan that doesn’t require the usual verifications.
Once commonplace, no-doc mortgages are hard to come by now. Here’s how you can get one.
What is a no-income verification mortgage?
A no-doc mortgage is also referred to as a no-income verification mortgage and, as the name implies, it does not require a lender to verify how much you earn in the traditional sense (i.e., with pay stubs and W-2s). These type of loans are also sometimes called NINJA mortgages, which stands for no income, no job or assets.
“It’s an option that has existed for decades,” explains Greg McBride, CFA, the chief financial analyst at Bankrate. “During the housing boom [of the early 2000s], though, this previously niche product came into contact with mainstream borrowers. That was a breeding ground for the problems that led to the housing bust.”
In the years leading to the financial crisis of 2007-09, no-doc mortgage loans tended to be offered by subprime lenders, not major financial institutions, McBride says. However, due to the complexities of the finance industry, even the biggest banks wound up with exposure to the risk of failing to verify a borrower’s ability to repay a loan.
Since then, “no-doc mortgages have gone back to being niche products,” McBride says. “They’re probably even more niche than they were before.”
How do no-doc mortgages work?
Historically, any no-doc home loan operated on a bit of an honor system: The borrower would state their income without providing a load of paperwork to back up their claim. The lender still reviewed their credit history, but they took the borrower at their word on how much they earned.
The government has since addressed that with what’s called the ability-to-repay rule. In short, under this rule, a lender must figure out if you can actually pay back a mortgage.
“You generally cannot rely on what consumers orally tell you about their income,” the Consumer Financial Protection Bureau (CFPB) explains in its handbook for mortgage lenders. “You must verify a consumer’s income using documents such as W-2s or payroll statements.”
However, the CFPB offers flexibility for documenting how a borrower can repay. For example, a lender could use bank or other financial statements that highlight the borrower’s assets or investment income.
Who qualifies for a no-doc mortgage?
A no-income verification mortgage might be in the cards if you do not receive regular paychecks but you do have plenty of income or assets. This product only applies to a select few, though.
“These are not something available for your typical middle class or upper-middle class borrower,” McBride says. “It’s an offering for a high-net worth individual with rather unique circumstances, such as an entrepreneur who runs a successful start-up and has plenty of equity in the company.”
No-doc mortgages vs conventional mortgages
A no-doc home loan has the same benefit as conventional mortgages and other types of mortgages: It helps you borrow the money you need to acquire a property. Once you get the loan, it functions in the same way as a conventional mortgage, meaning you repay what you borrowed plus interest on a set amortized schedule.
However, the terms and credit requirements needed to get approved for a no-doc mortgage are different. Simply put, no-doc loans require higher credit scores and larger down payments than conventional mortgages do.
Even the best no-doc mortgage lenders also tend to charge higher interest rates. Why? Because a borrower who lacks full concrete evidence of regular earned income comes across as less creditworthy, and a loan to them carries a higher risk of default.
|Conventional loan||FHA loan||No-doc loan|
|*Current interest rate according to Bankrate|
|Minimum down payment||3% down payment||3.5% down payment||30% or more down payment|
|Minimum credit score||620 credit minimum||580 credit minimum||700+ credit minimum|
|Cost to borrow||7.53%* (30-year fixed)||7.39%* (30-year fixed)||Varies, but expect to pay several percentage points higher than conventional loans|
Where to find a no-doc mortgage today
While no-income verification loans do not exist in the same quantity — or even in the same form — as they did in pre-Great Recession, there are some no-doc mortgage loans available, and they are part of a larger bucket of non-qualified mortgages.
You won’t find these products widely advertised, though, and if you’re hunting for the best no-doc mortgage lenders, you’ll find slim pickings. In fact, all of the major banks contacted for this article indicated they do not offer this type of loan. You’re more likely to find them through a portfolio lender, and in some cases they might be referred to as a bank statement loan.
If you’re worried about proving your income due to your status as a self-employed individual or working for tips, there are other routes to qualifying for a conventional loan. It won’t be a no-doc situation, though; you’ll need to hand over quite a few documents to get a mortgage if you’re self-employed.
“In the absence of regular paychecks,” McBride says, “a proven income stream via tax returns is the way that many self-employed individuals and business owners qualify for mortgages.”
There’s just one catch: Those tax returns need to provide compelling evidence — a challenge if you’re focused on maximizing deductions. “The problem is that some business owners run those businesses at a loss,” McBride says. “If it’s a loss for tax purposes, it’s a loss for loan qualification purposes, too.”
Additional reporting by Kacie Goff