When applying for a typical mortgage, a series of income verification documents will be required by the lender. Borrowers wishing to raise this documentation could potentially use a mortgage without documentation. A mortgage without documentation is a type of loan that does not come with the normal verification of income from a traditional mortgage.
Loans without documentation
Loans without documentation also sometimes referred to as “liar loans” and were subject to a lot of scrutiny after the subprime mortgage crisis of 2008 in the United States. While these loans are still available, they are not as easy to qualify as they were before. With a loan without documentation, you do not have to meet the normal income verification that comes with a regular mortgage. For some borrowers, this is the only way they can qualify for a mortgage loan.
No documentation loans come in a few varieties for borrowers. The real loan without documentation does not require proof of income, such as pay stubs or tax returns. Another type of loan is the stated income loan. A stated income tells the lender the amount you earn and you have to provide a tax return or bank also extract. The loan is another unrelated type of loan in which the lender uses a ratio of debt income.
To qualify for any loan without documentation, you must have an excellent credit score. Since the lender has no way to verify or document income to move forward, you have to put more emphasis on the borrower’s credit score. The lender will often ask how much money and then you take the floor, no matter how much you say. This creates an additional risk for the lender, since the income is not verified.
If you expect to get a mortgage without documentation and avoid filing entry documents to the lender, you have to be willing to accept a higher interest rate. Since the lender is getting a higher risk, you must compensate for the risk with additional return. The extra performance comes in the form of a higher interest rate and also have to pay private mortgage insurance premiums in most cases.