Applying for a loan can be a very challenging task because of the mountain of paperwork that you are required to fill out. It also requires a lot of documents such as bank statements, tax statements, etc. These documents are necessary to build up the trust of the lender.
To get rid of all of this paper works and documentation, especially if you are a self-employed person, you can apply for a no-doc mortgage which is a much faster and easier way to get a loan.
What is No Doc Mortgage?
No doc mortgage is also called low-doc or no-income verification which is basically a type of mortgage in which the borrower does not have to submit any type of tax returns or verification of income.
No doc mortgage loan programs take approval which is entirely based on an agreement from the lender who believes that the borrower will be able to repay the loan in the future. Because income is not easily verifiable, this type of loan is chosen by people who don't have a regular source of income.
How do No Doc Mortgages Work?
In earlier times, no-doc mortgages were operated on an honor system: It is basically a system in which the borrower used to state their income without providing any sort of paperwork to the lender. The lender then used to review their credit history, but they had more faith in the borrower's word on how much they earned.
Since then this system has been continued with slight changes. In today's time, you certainly can't take the borrower's words seriously and this is why the Consumer Financial Protection Bureau (CFPB) explains in its handbook the requirements for mortgage lenders. The lender must verify its income using documents such as W-2s or payroll statements.
What is needed for a No Doc Mortgage Loan?
In most cases, you will need to submit a credit check to the lender so that he can view your credit history and how timely you are in paying those debts. The borrower is also supposed to provide his past bank statements so that the lender can get a sense of her monthly income.
You might also be asked to fill out alternate forms of proof such as a letter from a professional who is familiar with your finances, for example, an accountant or an attorney. The specific requirement for a no-doc loan varies depending on your lender. But one thing that is common with no-doc mortgage loans is that you are required to give a down payment on the home you wish to buy.
Mortgages for self-employed borrowers are notoriously difficult to get, because of the fact that the self-employed often lack paperwork such as paycheck stubs or other proof of employment. This is why it is recommended to self-employed borrowers to get a no-doc loan as they don't have to provide such a proof to anybody.
CONCLUSION
With the help of no-doc mortgages, borrowers don't have to prove or provide a document of the source of income. These types of loans are very beneficial for people who don't have regular income as it does not require many complications for approval.
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