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No-doc mortgages, which originally required no proof of a borrower’s ability to repay their loan, were considered a major reason for the downfall of the housing market in 2008. When the economy turned south and unemployment began climbing, it’s estimated that up to 10 million people lost their homes. In many cases, that was because they had been given unaffordable mortgages.
While a no-doc mortgage carries risks for the lender, it can be convenient for a borrower. They require less paperwork and may close faster than traditional mortgages. No-doc mortgages can be an especially attractive option for those who are self-employed or had a mortgage application denied in the past.
What Is a No-Doc Mortgage?
No-doc is short for “no documentation.” The no-doc loans of the past—those considered responsible for the housing collapse—were known as no-income, no-asset (NINA) loans. They didn’t require a borrower to submit any income or asset verification documents such as tax returns, pay stubs or bank statements.
Following the housing crisis of 2008, the government enacted new rules to severely limit the ability of lenders to offer these no-doc mortgages. Today, you aren’t likely to find a true no-doc mortgage. Instead, lenders offer mortgages that may be marketed with terms like:
- Low-doc
- No income verification
- Flexible documentation
- Stated income
- Asset utilization
- Self-employed home loans
Regardless of the name used, these loans allow borrowers to apply for a mortgage using standard asset verification documents.
How Do No-Doc Mortgages Work?
With a true no-doc mortgage, borrowers aren’t required to submit paperwork to substantiate their income or assets. Instead, they sign a declaration stating that they’re able to repay the loan. However, only about 3% of lenders are currently able to provide these mortgages, according to digital bank Quontic.
In the wake of the Great Recession, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act to address some of the practices that were believed to have led to the housing market collapse and economic downturn. Among other things, the law created the Consumer Financial Protection Bureau, which adopted a rule requiring lenders to ensure buyers could repay their mortgages.
Today’s no-doc mortgage lenders may ask a borrower to state their income without requiring the standard documentation to verify that amount. Instead, they may ask to verify a person’s assets in a different way. For example, you may be required to provide statements from bank, investment or retirement accounts.
How To Get a No-Doc Mortgage
The application process for a no-doc mortgage is similar to that for a conventional mortgage. You’ll likely have to fill out an application form with information about your income and employment. In addition, you’ll need to provide your Social Security number (SSN) so the lender can check your credit score and history.
Then, you’ll usually need to provide some type of documentation to prove you can pay back the loan. For instance, you might need to provide bank statements going back as far as two years. But you won’t need to furnish tax returns, W-2s or pay stubs.
Credit scores and down payment requirements are also different for no-doc mortgages. For instance, Quontic requires a credit score of 640 for its flexible documentation mortgage. That compares to the 620 often required for a conventional mortgage. The bank also requires a down payment of at least 20% for these loans while conventional loans can be obtained with as little as 3% down.
Other lenders may only provide loans to those with credit scores above 700 or require even larger down payments.
Where Can I Get a No-Income-Verification Mortgage?
You’re not likely to find no-income-verification mortgages at big banks and major mortgage lenders. Instead, this is a niche product that is largely available through online mortgage providers such as Quontic and Mortgage Depot.
Private lenders may provide no-doc mortgages as well. Also known as hard money lending, these loans are based on the value of the property you’re buying, rather than your ability to pay. Investors are often willing to extend these loans so long as the property has sufficient equity.
Pros and Cons of No-Doc Mortgages
You might think a no-doc mortgage sounds like an easy and fast way to get a home loan, and that can be true. However, there are also downsides to these mortgages.
Pros of No-Doc Mortgages
- Less paperwork to gather and submit
- Can close faster than other loans
- Makes home loans more accessible to those with irregular income
- May be easier to win approval for an investment property
Cons of No-Doc Mortgages
- Not available through most major lenders
- Typically requires a higher credit score and down payment
- No-doc mortgage rates are often higher
- Loans from private lenders tend to have short repayment periods
When To Get a No-Doc Mortgage
- A no-doc mortgage can be a good choice if you:
- Need to close on a loan fast
- Are purchasing an investment property
- Don’t qualify for a traditional mortgage because of irregular income
To that last point, the people who may benefit from loans with flexible documentation requirements are generally:
- Self-employed workers
- Commissioned workers
- Small business owners
- Retirees
- Temporary workers
- Non-U.S. citizens
All the groups above may have irregular or limited income histories to share with lenders. That can make receiving approval for a traditional loan difficult and may make no-doc mortgages that rely on assets or the value of the property a more appealing option.
Related: No-Doc Business Loans
Should I Get a No-Doc Mortgage?
While the no-doc mortgages of the past were often marketed to subprime borrowers with lower incomes and credit scores, today’s no-income-verification loans are meant more for those with good credit and high net worth.
In most cases, you’ll need a higher credit score and a larger down payment for a no-doc loan than a traditional mortgage. If you’re buying an investment property with a no-doc mortgage, the lender may also want to see that you have a history of successfully flipping homes or managing rental properties.
Before applying for a no-doc loan, consider applying for a traditional loan first. Unless you have a need to close on a property quickly, you’re likely to get better terms and a lower interest rate with a conventional or government-backed loan such as an FHA mortgage or VA loan.
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