No-Doc Mortgage Loans: What Are They and How Do They Work?

Potential homebuyers who are not employed full-time or whose income is considered irregular may not have the proof of employment typically associated with a mortgage. However, these consumers do not have to abandon their dreams of becoming homeowners altogether.

Instead, they could qualify for a no-documentation mortgagealso known as a no-doc mortgage, no-income verification mortgage, or no income, no job or assets’ (NINJA) mortgage.

As the name suggests, there is less paperwork involved to get approved for a no-doc mortgage. The lenders will go through non-traditional channels to verify a borrower’s income.

In this article, you’ll learn about what no-doc mortgages are and their requirements, who can qualify, and whether or not this may be the best option for you.

What Is a No-Doc Mortgage and How Does It Work?

No-doc mortgages do not require the normal sort of documentation of most loans such as bank statements or recent pay stubs. This type of mortgage loan is generally intended for people who do not have tax forms from an employer or who want their information to remain confidential.

Depending on the situation, you will still need to provide some evidence of income.

Since no-doc loans are risky for lenders, your interest rate will be much higher than usual and you may have to look around at multiple companies before someone will take a gamble on you. You’re unlikely to find no-doc loans at the big banks.

To have a realistic chance of being approved, you will need to have an excellent credit score.

If your credit score isn’t 740 or higheryou will need to make every possible effort to increase it before applying for this type of loan.

What Is a No Ratio Loan?

No ratio loan is another variety of no-doc loans. It’s primarily for people who do not want to disclose their income or have complicated and fluctuating sources of income.

While most borrowers must have a debt-to-income ratio below 43% to qualify for a loan, a no loan ratio means that lenders will not take your DTI into account.

To qualify for a no ratio loan, you will also need a solid credit score, and it’s ideal to have significant assets as well. With this type of loan carrying considerable risks for lenders, you can expect to pay a higher interest rate than one where you prove your income.

Are No-Doc Mortgages Still Available?

While it is deemed a niche product in the housing industry that has historically been associated with sub-prime lenders, no-doc mortgages still exist and continue to evolve today.

Since the housing crisis of 2007/2008, in which mainstream lenders had exposure to sub-prime mortgages, lending standards on no-doc mortgages have tightened to provide better consumer protections.

Before, these loans were the go-to, self-employed mortgage based on a trust system between lenders and borrowers on income. These days, it is not that simple.

This primarily affects the NINJA mortgage: lenders were not required to verify a borrower’s income, assets, or job status. These loans have mostly gone away since the Great Financial Crisis.

Who Can Get a No-Doc Mortgage Loan?

A no-doc mortgage loan is designed for people outside the realm of the traditional financial system. No-doc mortgages are meant for high-net-worth individuals whose employment income is not cut and dry.

For example, an entrepreneur with equity in a startup with enough operating history could be an ideal candidate for a no-documentation mortgage. Under these conditions, even a high-middle-class borrower might not meet the standard.

Circumstances under which you might be able to qualify for a no-documentation mortgage include:

  • If your paychecks are sporadic, but you have managed to accumulate savings or liquid assets that can easily be converted to cash.
  • Self-employed people or those who work in the gig economy or restaurant business.

Another candidate for no-doc mortgages is someone who receives steady deposits that their bank statements can verify. In this case, they could qualify for a self-employed mortgage loana term used interchangeably with a no-doc mortgage.

Real estate investors make up another potential borrower category for a no-documentation mortgage. For buyers who are flush with cash and whose steady rental income will pay the mortgage, no-doc mortgage loans could be the ideal solution.

Advantages of a No-Doc Mortgage Loan

The key benefit of a no-doc mortgage loan is that it plays the same function as traditional loans. At the end of the day, it helps the consumer to own a home. In addition, borrowers can avoid excessive paperwork generally required for an application, and they could even have the closing process accelerated compared to a fully documented loan.

When you’re ready to take advantage of these benefits, find a Total Mortgage loan expert near you to find out if you qualify for a no-doc mortgage.

Requirements for a No-Doc Mortgage Loan

You may be wondering what it takes to qualify for a no-doc mortgage. The truth is that what no-doc mortgage loans lack in the paperwork, they make up for in other requirements.

For example, to be eligible for a self-employed mortgage, a borrower is expected to maintain a higher credit score than required for a fully-documented mortgage. In addition, they will need to put down a higher down payment as a percentage of the purchase price.

  • Minimum down payment: Homebuyers can expect to pay a down payment of anywhere between 20 to 30% or more of the purchase price.
  • Minimum credit score: No doc mortgage loans have a stringent credit score requirement of at least 700, which according to Experianfalls into the “good” category of credit score rankings.

Explore Total Mortgage’s Loan Options

No-doc mortgages are geared toward people who do not have a steady income or full-time employment but want to become homeowners. Since the risk to the lender is greater with no-doc mortgages, qualifying for one is quite difficult but not impossible.

If your credit history and financial situation tick all the boxes listed in this article, homeownership may be within reach for you with a no-doc mortgage. If not, you might want to explore your options with a traditional mortgage.
We are here to walk you through the process from beginning to end.

Take the first step by applying for a mortgage today, or find a Total Mortgage branch near you and discuss your options in person with one of our loan advisors.

Thomas Bepko

Thomas began his mortgage career in San Francisco, California in 2003 after serving in the United States Army, and has over 10 years of experience in the mortgage industry. Contact Thomas by phone at 203-707-5728, or by email at [email protected] NMLS # 202157.


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