Key Takeaways
No-doc mortgages offer a way to get a mortgage without some of the documentation lenders traditionally require to prove income or employment, such as a W-2 or pay stub. Since the Great Recession, no-doc mortgages have become much harder to obtain. No-doc loans often require a higher credit score and a larger down payment than traditional mortgages.
Applying for a mortgage requires a mountain of paperwork, including bank and tax returns, pay stubs, and employment verification. But if your income is irregular or you lack the standard documentation that a typical full-time employee has, you might not be able to provide it. If so, you may be a candidate for a no-doc mortgage, a type of loan that doesn't require the usual verification.
What is a No-Document Mortgage?
With a no-doc mortgage (also known as a no-verification mortgage), the lender doesn't need to verify the borrower's income through a pay stub or W-2. This type of loan is sometimes called a NINJA mortgage, which stands for no income, no job, no assets.
“This is an option that's been around for decades,” says Greg McBride, chief financial analyst at Bankrate. “It was around during the housing boom. [of the early 2000s]But these previously niche loans were now coming into contact with everyday borrowers, creating a breeding ground for problems that led to the collapse of the housing bubble.”
In the years leading up to the 2007-2009 financial crisis, no-doc mortgages tended to be offered by subprime lenders rather than big financial institutions, McBride said, but the complexity of the financial industry left even the big banks at risk of not being able to verify a borrower's ability to repay the loan.
Since then, “no-doc mortgages have gone back to being a niche product,” McBride says, “probably even more niche than they were before.”
How does a no-doc mortgage work?
Historically, no-document mortgages operated on a credit system: borrowers declared their income without verifying it. Lenders would check the borrower's credit history but would only take the borrower's word about how much they earned. Governments have since addressed this issue.
“Generally, you cannot trust a consumer's verbal statements about their income,” the Consumer Financial Protection Bureau (CFPB) explains in a handbook for mortgage lenders. “You should verify a consumer's income with documentation such as a W-2 or pay stub.”
What federal laws must lenders follow when offering no-doc loans?
When lenders give out no-doc mortgages, they must adhere to a rule called the ability-to-repay rule, which says that lenders can't just take a borrower's word about their income. They have to verify that the borrower can repay the mortgage.
However, the CFPB does provide flexibility for borrowers to document how they can repay. For example, lenders can use bank or other financial statements that highlight the borrower's assets or investment income.
Who qualifies for a No-Doc Mortgage?
If you have the following qualities, you have a good chance of qualifying for a no documentation mortgage.
Adequate income, significant assets, a down payment of at least 30%, and a credit score of at least 700.
“These are not things that are available to your typical middle-class or upper-middle-class borrower,” McBride says. “They're for wealthy people in fairly unique situations, like entrepreneurs who run successful start-ups and have a significant equity stake in those companies.”
Types of No Document Loans
No-doc mortgages come in many different forms, and each of the best no-doc mortgage lenders has their own requirements for this type of loan. To give you a rough overview of how a no-doc mortgage works, here are a few examples:
No Income, Verified Assets (NIVA) Loan: With this type of asset-based loan, the lender will check to see if you have the ability to repay with liquid assets (such as stocks or retirement accounts). Bank Statement Loan: With this method, you use past bank statements to prove your income instead of pay stubs or W-2s. This usually makes sense if you’re self-employed or don’t receive a traditional salary. No Income, Verified Assets (NINA) Loan: With these types of loans, they will usually check to see if you can repay the loan based on the income from your rental property. For example, if you’re a real estate investor buying a three-unit rental property, and the rent on two of the units can cover the mortgage payments, a NINA lender may be willing to lend to you.
No-doc mortgage vs. conventional mortgage
No-doc mortgages have the same benefits as traditional mortgages and other types of mortgages: they help you borrow the funds you need to acquire real estate. Once you obtain the loan, it works just like a traditional mortgage, in that you pay back the amount you borrowed, plus interest, according to a set amortization schedule.
However, the terms and credit requirements for approval of a no-doc mortgage are different. Simply put, a no-doc mortgage requires a higher credit score and a larger down payment than a traditional mortgage.
Even the best no-doc mortgage lenders tend to charge higher interest rates. Why? Because borrowers without complete, concrete evidence of regular earned income are considered less creditworthy, and lending to such borrowers increases the risk of default.
Conventional Loans
FHA Loans
No documentation required loan
*Interest rates from Bankrate as of April 15, 2024 Minimum Down Payment 3% down payment 3.5% down payment 30% or more down payment Minimum Credit Score 620+ credit 580+ credit 700+ credit Cost of Borrowing 7.26%* (30-year fixed) 6.92%* (30-year fixed) This will vary, but expect to pay a few percentage points higher than a traditional loan.
Should I get a no-doc mortgage?
Like almost any type of loan, a no-doc mortgage has advantages and disadvantages to consider.
Strong Points
No-document mortgages make it possible for people without a steady salary to buy a home. These loans require fewer documents to be submitted and verified, which can lead to faster approval.
Cons
Very few lenders are offering this loan in 2024. To qualify, you will need a good credit score and lots of liquid assets. No-document mortgages usually have higher interest rates.
No-doc mortgages will likely have higher interest rates, so only consider this option if you can't qualify for a traditional mortgage. Many lenders work with self-employed borrowers to verify their income in a different way, which means you might not have to pay as much to get a no-doc mortgage and end up paying more in the process.
Where to Find a No Document Mortgage Now
Loans that don't require income verification don't exist in the same numbers or in the same form as they did before the Great Recession, but some mortgages that don't require documentation do exist, and they're part of a larger group of non-qualified mortgages.
However, these products aren't widely advertised, and if you shop around mortgage lenders looking for no-doc mortgages, you'll be limited in what you can find. You're more likely to find them through a portfolio lender, sometimes called a bank statement loan.
Alternatives to No-Document Mortgages
If you're not sure if a no-paper mortgage is the best option for you, there are also some alternatives to consider. However, these are not all no-paper options and will require you to submit some documents. Some of the options include:
FHA Loans: These loans are guaranteed by the government and pose less risk to the lender, so they may be easier to get approved for. This option also requires only a 3.5% down payment. Non-Qualified Mortgages: This is a type of non-conforming loan that, like no-document mortgages, verifies your income in a different way. The eligibility criteria for this option are less stringent, but interest rates are often higher. All-Cash Purchase: High-net-worth individuals or those with a lot of liquid assets can avoid mortgage financing altogether and purchase a home with all-cash.
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