No Doc 2nd Mortgage
It seems a large number of homeowners these days are looking to finance a 2nd mortgage, but many borrowers have to go “No Doc” to qualify. No Doc is usually defined as no income, no asset, and no employment verification. Essentially all the borrower must document is a credit report, and the bank or lender will decide if the they are suitable for financing.
There are a number of Alt-A banks and lenders that offer “No Doc” 2nd mortgages, but often the pricing adjustments are enormous, and the CLTV, or combined-loan-to-value restrictions usually limit the amount of financing a borrower can attain.
Most banks and lenders only offer financing up to a CLTV of 80% if you can only provide “No Doc” documentation. If you have enough equity in your home this shouldn’t keep you from opening that 2nd mortgage, but if you are already at 80% CLTV, it will be tough to find a lender who will provide a 2nd beyond the amount of your existing liens.
If you do find a No Doc 2nd mortgage, it will likely be a fixed mortgage product, and not the more sought after home equity line of credit. Home equity lines usually require verified assets to qualify, so you’ll likely find yourself with a 30 yr fixed product, though you can add an interest-only option. You will also likely need a decent Fico score, something above 660 to be sure.
The pricing adjustment for No Doc will be high, often above 2 points to the rate, so if the lender or bank is offering a par rate of 8%, the No doc hit alone will drive your interest rate up to 10%.
Let’s look at a quick example:
8% par rate
Adjustments to rate:
2.5% for no doc
0.5% for Fico
0.25% for cash-out
0.25 interest-only
Your final interest rate would be 11.5% for your no doc 2nd mortgage.
If your loan amount is $100,000, the interest-only payment would be $958.33.
The question you need to ask yourself is if it is worth opening a 2nd mortgage if you’re unable to provide better documentation than No Doc. You may want to hold off until you can provide a better level of documentation to open up your program options and keep your interest rate low.
