How a No Documentation Mortgage Works
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How a No Documentation Mortgage Works

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
By , Trusted Mortgage Expert with 45+ Years of Experience
Edited by Michael Jensen
How No Documentation Mortgages Work

A no documentation mortgage, also known as a no doc mortgage, lives up to its name as borrowers are not required to submit any personal financial documents to verify their income, assets or employment. This means that you can qualify for a mortgage without providing your tax returns, W-2s, pay stubs or even bank statements. With a no documentation mortgage, the only information that the lender uses to qualify the borrower are the credit report and property appraisal report.

The lenders reasons that if your credit profile is strong enough and your report does not show any significant negative events such as a bankruptcy, foreclosure or short sale, then you are likely to make your mortgage payments and pay back the loan over time. In short, instead of verifying your income, financial and employment information, the lender uses the credit report to to determine if the applicant is credit-worthy.

Keep in mind that your credit report contains a lot information about your current and past debts, including any prior mortgages, but it contains almost no information about your income or savings, so no doc loans involve more risk for lenders. They have less information to determine what type of borrower you will be.

The lender relies heavily on the appraisal report to manage this risk. The appraisal report is used to determine the current fair market value of the property, which provides collateral for the no doc mortgage. As long as the property provides sufficient collateral relative to the value of the loan, the lender should be able to recover the full mortgage amount in the event of default or foreclosure.

This is why the appraisal report is such an important part of a no documentation loan application. The lender wants to make sure that they have enough coverage or protection in case you cannot repay the loan. Simply put, the lender uses the property value to manage the higher risk associated with providing a mortgage to someone without verifying their financial information.

 NINJA Loans - No Documentation Loans and the Real Estate Crisis

No documentation mortgages were very popular before the real estate crisis. During this time period, these programs were also called NINJA loans. NINJA is short for No Income, No Job, No Assets and exemplified the lending practices that led up to the mortgage meltdown in 2008. Although many of the applicants who obtained no doc or NINJA loans held jobs and had some level of assets, they frequently used the program to buy homes they may not have been able to afford. In fact, NINJA mortgage programs were highlighted as one of the main causes of the real estate market collapse. If people are buying homes they cannot really afford, that creates a bubble and unfortunately that bubble ultimately burst.

In the aftermath of the real estate collapse, NINJA loans basically disappeared but they have slowly been making a comeback over the past several years. More lenders are offering the program, including hard money or private money lenders.

Reasons to Get a No Documentation Mortgage

The main reason to get a no documentation loan is because you do not want to provide financial or employment information to lenders when you apply for a mortgage. This could be because you do not have the documents to provide or it could be due to privacy or confidentiality concerns. For example, you may not want to share your tax returns or you may not have pay stubs because you own your own business. In sum, there are many reasons to get a no doc mortgage, some of them are legitimate while others may not be.

No doc mortgages are typically used by self-employed borrowers or applicants whose primary source of income is from assets or investments. Self-employed borrowers may not have W-2s or pay stubs plus their personal tax returns may not present a clear picture of their financial information. Borrowers who earn most of their income from investments also may not have the income or employment documentation required by lender.

House flippers or real estate speculators also use no documentation loans as they typically cannot obtain traditional mortgages. There is a higher risk involved with flipping a home so traditional lenders avoid these loans. Because no doc loans rely on the underlying asset, the property, rather than the applicant’s income, they are better suited for house flippers.

How to Find Lenders That Offer No Documentation Mortgages

As referenced above, the program was basically extinct but has been making a slow comeback as the economy and property values improved. No doc loans are typically offered by smaller, local specialized mortgage banks, mortgage brokers or hard money lenders (also called private money lenders) as opposed to traditional banks. The program remains relatively uncommon so you may need to hunt around to find lenders that offer no documentation mortgages.

Use the FREEandCLEAR Lender Directory to search for twenty-five mortgage programs by lender type. For example, you can search for private money lenders that offer alternative mortgage programs including options for self-employed borrowers.


No Documentation Mortgage Requirements

Although the risk associated with no documentation mortgages remains the same, lenders are applying more stringent loan requirements including higher credit scores and lower loan-to-value (LTV) ratios, as outlined below.

For no doc mortgages, lenders typically require that the borrower has a credit score of 680 or greater. Working with applicants with higher credit scores is one of the ways that lenders manage their risk. Additionally, borrowers with recent adverse credit events may not qualify for the loan.

Additionally, lenders typically require a loan-to-value (LTV) ratio of 70% or less, as compared to the 80% to 90% or higher LTV ratios lenders allow for traditional mortgages. Using a lower LTV ratio provides the lender with added protection in the event the borrower defaults on the loan. For example, if you use a no documentation mortgage to buy a $200,000, home, you may be required to make a down payment of $60,000 or more, which means your mortgage is $140,000 or less. A $140,000 loan on a property valued at $200,000 means that the lender is likely to recover their full mortgage amount if you cannot repay the loan.

No Documentation Mortgage Rates and Fees

The higher risk for lenders means that no documentation mortgages come at a cost to the borrower. No documentation mortgage rates are typically 2.0% to 3.0% higher than the rate on a regular loan plus the borrower is usually required to pay higher closing costs. If you decide to apply for a no doc mortgage be aware of high interest rates and fees and compare proposals from multiple lenders to make sure you are getting the loan with the best terms.

Current Mortgage Rates in Ashburn, Virginia as of July 15, 2024
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Rate data provided by RateUpdate.com. Displayed by ICB, a division of Mortgage Research Center, NMLS #1907, Equal Housing Opportunity. Payments do not include taxes, insurance premiums or private mortgage insurance if applicable. Actual payments will be greater with taxes and insurance included. Read through our lender table disclaimer for more information on rates and product details.

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About the author
Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR.  Harry is a licensed mortgage professional (NMLS #236752). More about Harry

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