No Doc Loan in California
By Anoop Kumar – CEO/ Mortgage Broker at Fast Fund Mortgage, Yorba Linda, CA
What exactly Is a No Documentation Mortgage (No Doc Mortgage)? And how possible it is to obtain one?
For a normal loan to purchase your home or refinance, you need traditional loans like FHA, Conventional, VA etc. etc. For these loans, you provide your federal income tax return to the lender for the verification of your income.
But what if you don’t have enough income shown on your income tax return? The answer is No Documentation Mortgage (No Doc Loan in California).
The majority of the 1099 independent contractors or small business owners, or even real estate investors face this problem. Why? Just because they keep on deducting all the possible business expenses so that they have to pay a minimum of income tax.
As long as you don’t have plans to buy or refinance any further real estate, this strategy will work perfectly. However, when you intend to purchase a new property. Maybe an investment one, your this strategy will become a problem.
To go around this problem specifically, lenders came up with a new loan product that would bypass the traditional loan documentation requirements.
The lenders saw a huge window of opportunity so that the people in 1099 situations, small business owners, and real estate investors could be helped in securing a new real estate loan.
A No documentation Loan (No Doc Loan in California) was introduced and has been around for a while now.
Not Require Evidence:
This loan does NOT require evidence of a borrower’s income. Instead, the loan is underwritten based on confirming that the borrower can afford and pay the loan payments and have enough equity in the property as sufficient collateral.
These loans do not meet the Consumer Credit Protection Act requirement to verify the borrower’s financials. The assessment of a No Documentation Loan (No Doc) is based mainly on the resale potential of the secured property and the repayment structure and ability of the mortgage.
Let’s understand A No Documentation Mortgage (No Doc Loan in California)
No documentation mortgage (No Doc mortgage) was one of the causes of the financial collapse in 2008, which led to the Great Recession.
However, these loans are still around. These loans do not require tax returns for documentation of income. Borrowers such as self-employed persons, and those whose income mainly rely on tips, and independent contractors- 1099, may have difficulty documenting their income.
Historically no documentation and other Alt-A loans have high levels of default, and their high default rate was a key factor leading to the 2008 subprime lending, financial crisis. According to the Dodd-Frank rules, more types of loans and mortgage loans are now required than most documents. They are eligible to take out loans that have bank statements and asset documents.
There are some other types of Alt-A loans like the no documentation mortgage available:
- Low documentation loan (Low-Doc) very little information on borrowers is needed.
- Lenders usually issue these loans on their client’s credit scores.
- No Income-No Asset (NINA) These mortgage programs don’t need the borrower to disclose income or assets as part of loan calculations.
- However, the lenders do verify the borrower’s employment status before issuing this loan.
Stated income-stated asset loan (SISA) as the name says this loan product allows the borrower to state their income without verification by the lender.
Who can use No Documentation Loans (No Doc)?
If you’re a house flipper or a landlord and have multiple expense write-offs on your income tax returns and you want to buy investment properties without thoroughly documenting your income, then a No Documentation loan (NO Doc) may be an option for you.
But lenders granting No-Doc loans to you will require you to have excellent credit scores – typically over 740, and high cash reserves available to make large down payments.
A down payment of at least 30-percent and up to 50 percent is required. Whereas a conventional loan requires only a 20-percent down payment. Such mortgages also have a minimus 70 loan-to-value ratio (LTV) compared to 20 percent in conventional mortgages.
The LTV ratio is the amount of the mortgage lien divided by the appraised current value of the property, in relation to percentage.
The higher the borrower’s down payment on the investment property, the better chance it is to be approved for the loan.
This business model for lender and borrower is a win-win situation because lenders see that the borrower is willing to offer a significant amount of capital.
This large amount of payment will mean there is less likelihood that the borrower will default because of their considerable investment.
The interest rates for no documentation and other Alt-A products are usually higher than rates for a traditional mortgage loan.
So the nutshell is that Many of these limited documentation loans take their security from the equity position in a property.
If you still have any questions on No Documentation Loans (No Doc Loan in California), please contact us at www.Fastfund2purchase.com or Fill up the short form provided here on our website.