No Documentation Mortgage Loans

no doc loan

The housing market was on fire in the early 2000s before it eventually burnt to a crisp. This led to rampant speculation and greed as a larger group of prospective home buyers emerged.

Unfortunately, because home prices had increased so significantly, many would-be borrowers were forced to go “No Doc” in order to actually qualify for a mortgage. Whether that’s really qualifying is a question for another day, or perhaps just too enigmatic.

What Are NINJA Loans?

Anyway, the term “No Doc” is usually defined as no income, no asset, and no employment verification. Some silly loan officers refer to these types of loans as NINJA loans, with the “J” representing the word job.

NINJA loan

It doesn’t mean the borrower doesn’t have a job, it just means the lender doesn’t ask any questions related to their employment. So in essence, the borrower could potentially be unemployed. And that might explain a lot of the trouble these loans eventually caused.

Essentially, all the borrower must document with a no-doc loan is their credit history (in the form of a credit report), and the bank or lender will use this alone to determine if they are suitable for home loan financing. Sound scary? It is/was.

Most Mortgages Were No Doc Prior to the Crisis

If you’re wondering whether this type of mortgage lending is risky or not, look no further than the recent mortgage crisis that ensued around 2008.

Tons of mortgages leading up to the crisis were no documentation loans, and as long as the borrower had semi-decent credit, they could generally qualify for a loan, even a jumbo loan! Yikes.

While I don’t know the exact number, I wouldn’t be surprised if no-doc loans held a majority for some time in 2005-2008. Basically everyone just went no-doc to avoid the trouble, even if they could verify income, assets, etc.

Prior to the crisis, there were a large number of Alt-A lenders and subprime banks that offered “No Doc” mortgages, but pretty much all of them shut down as a result of the downturn.

No-Doc Loans Are More Expensive Because They’re Riskier

While no-doc loans were readily available, the pricing adjustments were often enormous, and the loan-to-value (LTV) and combined-loan-to-value (CLTV) restrictions typically limited the amount of financing a borrower could obtain.

Most banks and lenders only offered financing up to a CLTV of 80% if you could only provide “No Doc” documentation. However, you could tack on a second mortgage from a different lender as well and still get to 100% financing!

If you were refinancing and had enough equity in your home, you may have been able to take out a mortgage using a no documentation loan while avoiding any associated pricing adjustment.

Typically, this threshold was set around 65% loan-to-value (LTV). The thinking here was that a borrower with that much home equity wasn’t a threat to the bank, even if they couldn’t keep up with mortgage payments.

After all, if the bank had to foreclose, they could still sell the home for a profit.

Still Looking for a No-Doc Loan Today? Good Luck

These days, you’ll be hard pressed to find a no documentation loan, but if you do, it will likely call for a high FICO score, typically above 700.

After all, if the lender only has credit to go on, they need to ensure you’re not a huge credit risk. Remember, they won’t know anything else about you, so lending to a relative unknown with bad credit wouldn’t make much sense.

And keep in mind that the pricing adjustments for “No Doc” will be extremely high if the loan-to-value is 80%, often about two points to the rate.

So if the lender offers a par rate of 6%, the documentation hit alone will drive your interest rate up to 8%. Then there are other adjustments to worry about as well.

Let’s look at a quick example of a No Doc loan pricing:

Par rate (before adjustments): 6%

Rate adjustments:

– 2% for “no doc”
– 0.5% for FICO
– 0.25% for cash-out
– 0.25% interest-only

Your final interest rate would be 9% for your “No Doc” mortgage. Ouch!

The question you need to ask yourself is if it is worth getting that mortgage if you can only go “No Doc.” It may be advisable to hold off until you can provide a better level of documentation to open up your loan program options and keep your mortgage rate at a reasonable level.

Of course, if you really need to purchase a home, or are in dire need of a refinance, a no doc loan may be your only option. And ideally you can refinance a short time later to receive more favorable terms.

This is all the more reason to properly prepare yourself for a mortgage by keeping your credit scores in good shape, setting aside assets, and maintaining steady employment history.

Tip: You may also want to consider a stated income loan, which come with far smaller pricing adjustments, yet increased flexibility in terms of qualification. They are becoming a lot more common again and could still suit your needs.



40 Comments

  1. Colin Robertson January 30, 2018 at 8:49 pm -

    Nancy,

    Sounds like you either pay all cash or you look for a non-QM lender that is willing to overlook the employment gaps. If you have an explanation for the work issue, that may help as well. But it’s tough to get a mortgage without a job unless you have a ton of assets.

  2. Nancy January 15, 2018 at 10:19 am -

    I want to purchase a new home valued at $355,000. I have $270,000 down payment and a 810 credit score, and a little over $100,000 in assets. However, at this time I am not working, have been up until Aug of last year, and plan on working if an when I move to a different state. So, far, traditional lenders won’t lend to me. What are my options?

  3. Daniel Neumeyer January 8, 2018 at 7:01 pm -

    Hello,
    I am self-employed for over 10 years. Been renting for 8.5 years, never missed a payment. Unfortunately, after my legally taxable deductions, my income is very low. I got denied a USDA loan because of this. :(
    I have average 745 fico. Only about $300 debt (only have it so I have payment history).
    I am thinking of not taking any tax deductions this year so that I can get a mortgage.. I have worked out I can easily afford around $100k mortgage (with plenty of room for adjustments as things come up)…. but NO ONE WILL GIVE ME ONE. :`(

    Why is the system so stacked against self-employed people? When filing for assistance, they want gross income before deductions, when doing mortgage, they want AGI after deductions… too many standards.

  4. Colin Robertson August 29, 2017 at 9:48 am -

    You may want to reach out to a broker to see if there is a no doc solution for you, perhaps something based on bank deposits or assets.

  5. snehankar das August 29, 2017 at 2:46 am -

    i have my all proper documents of ny property. but no income proof…. i want a mortgage loan as soon possible….

  6. Colin Robertson April 21, 2017 at 3:27 pm -

    Ms. Weary,

    Unfortunately, reserve requirements are a necessary evil for most mortgages to ensure borrowers can actually pay back the loan. Even the most well-paid person out there will still likely need to document reserves to satisfy this pesky condition. Hopefully you can find a way to move forward. You may want to ask your loan officer if there are some creative solutions or exceptions. Good luck!

  7. Ms. Weary April 20, 2017 at 4:08 am -

    Situation:
    Purchasing current residence I live in,
    1)Home is worth 85/15 LTV
    2)2.5 yrs on time house payments covered friends mortgage, just did occupancy prior to settlement and paying off mortgage, but promised I would go to settlement by May, 2017
    3)It has been a long haul but I worked very hard with student loans which killed my DTI, but I am CEO of my company,
    a:got my credit score over 630 nothing negative, so accepted since I built credit history immediately while cleaning up crap and it continues to rise all the time, so approved there
    b:built my two years in business from 0-260k (gross) but financials all worked out for underwriting
    c: Showed 6 months of on time house payments (although I offered all 2.5yrs never missing a payment)
    d. Received a gift letter they required for closing costs, even though I got 4.5% sellers concession on the sales contract
    e. Received my approval letter, all was well, ready for inspection etc…

    followed the best rule of thumb, I have the least expensive home in the most expensive neighborhood, comps out around 275-290k. Price of home, $229k.

    Was given interest rate of 3.85%

    Now interest rates a little higher would not deter me BUT NOW, two weeks before I NEED TO GO TO CLOSING, THEY TURN ME DOWN if I cant show 3 months of non business reserves

    OMG AFTER ALL THIS…….

    I am heart broken… I don’t know what to do. No I do not have reserves yet. I have worked hard to get where I in two years, through thick and thin, I never missed a house payment, I am now, on the cusp at 45 of a business taking off, a wonderful accountant that is structuring things for me, a great staff, finishing my education, brought enough clients to go from 0-260k gross revenue and exponentially growing, never took a loan, started everything myself, paid myself and worked worked worked.

    I was excited to honor my word, follow through and for the first at my age, own a home. I go to bed with my closing date and approval, woke up with my denial ONLY DUE TO LACK OF PERSONAL ASSETS? Ummmm, they must not realize how I could sell ONE MACHINE and make a payment, layoff off one worker and do labor myself for one week and pay my mortgage!!!

    WHAT DO I DO!!!

    COMPENSATING FACTORS

    1. TWO YEARS when I had nothing I never missed my house payment
    2. My home has so much equity in it, I’m hardly a market risk
    3. Lets see how much I can sell, not in my house, but what I could finagle in two seconds to pay my house because if you do not have your home you have nothing!!!!

    So that’s it!? I am. screwed? My integrity? My hard work? My dream? I lose my home? Demonize over education due to loans that are in deferment, although I have a plan to pay them off quickly next year. Demonized for NOT GOING INTO DEBT to open my business. I paid off ‘old baddies’ from past divorce, had them deleted, but none of that COMPENSATES…..

    MAYBE YOU OR SOMEONE can give me a piece of wisdom. I am ready to lose it. I get all the rhyme and reasons. I watch the market, I watch the trends, I watch rules, regs, believe me. WHERE IS THERE GRACE FOR SOME!

  8. Colin Robertson April 19, 2017 at 9:48 am -

    Sherri,

    A non-QM lender might have a bank statement program, but with no tax returns filed at all that could be pretty difficult.

  9. Sherri April 19, 2017 at 7:22 am -

    Ive been in business for 30+ yrs. I have a cleaning service, residential, commercial, new construction. I’m well known in my area. I haven’t filed taxes in a few yrs. Can I get a mortgage?

  10. Colin Robertson February 5, 2017 at 11:12 am -

    Jim,

    Self-employed borrowers can get mortgages, it’s just a bit more scrutinized because lenders can’t just ask for your W-2 and be done with it. It usually just requires a bit more paperwork, not a specialty lender of any kind.

  11. jim angelou February 2, 2017 at 3:36 pm -

    Hi
    looking to buy a home for 200k going to put down 50% my wife and I each have over 700 credit score. but being self employed makes it difficult, or should I say can make it difficult. curently we have a 3.5% rate on a 15 year loan have paid mortgages for 30 years and never once late. Our house has just been put under contract and the money left after paying off the balance will allow us to put the 100k down. any suggestions on best route to go. Jim

  12. Jmac December 23, 2016 at 10:35 am -

    Looking to borrow 15 to 18 thousand dollars. Me and my brother own a home, property tax appraisal is $110,000, I have been self employed for 20 yrs. No proof of income, do i have any options? I forgot to mention I have no credit.

  13. Colin Robertson November 28, 2016 at 4:10 pm -

    George,

    As I’ve told others, non-QM lenders seem to be the only game in town for stuff like this.

  14. George November 22, 2016 at 12:36 pm -

    Need a $365K loan. My Primary residence is tax assessed at $900K. Had a “released” Lis Pendens foreclosure this year as I was seriously ill in hospital for 6 months (mtg is current). As a result, my credit dropped to the mid 500 range. I own a commercial building free and clear worth $500K. I’m self employed and write off MANY expenses. Really need a no doc loan at a VERY low loan to value ratio. I’m in NJ and can’t find any? *Thoughts???

  15. Colin Robertson October 5, 2016 at 5:53 pm -

    Syd,

    You might be surprised what you qualify for, not sure the SE income is the issue unless it’s short-term…the problem might be the BK six years ago. In any case, shopping around to see what’s available will answer your question. A broker might be a better route because they can look at a bunch of lender programs at once to see if you fit.

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