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HomeBusinessReal EstateWhat Is a No-Doc Mortgage?

What Is a No-Doc Mortgage?

You can find around 16 million self-employed individuals in this country.

If you’re self-employed, you probably already know the perks it offers. However, you might also know the challenges that come with self-employment.

One of the challenges self-employed individuals face is getting approved for loans. If you work for yourself, you might not receive a regular paycheck. You might earn a great wage, but without paystubs, you can’t prove it.

As a result, applying for a mortgage loan might be frustrating, as lenders require income verification, which you can’t prove.

So, what are your options? The best one is to consider a no-doc mortgage.

If you’re in this situation, you might want to explore this option. Here is a guide to help you learn more about these unique mortgage types ideal for self-employed individuals.

The Unique Trait of No-Doc Mortgages

No documentation loans offer a way to forego the routine process lenders use to verify a person’s income when applying for mortgage loans. The process lenders use for this involves several steps.

The Routine Process for Verifying Income

When someone applies for a loan, the lender asks them for their pay stubs. The applicant’s pay stubs prove they have a job and show the income they earn from it.

Secondly, lenders send income verification forms to their employers. The employers fill them out and return them to the lender.

Lenders don’t want to issue loans to people who can’t afford to repay them. Therefore, lenders use this process as one of the key steps in the loan-verification process to ensure that a person can repay the loan.

Most lenders won’t issue mortgages to people who can’t prove their income through these steps.

No-Doc Loans Don’t Use These Steps

The unique trait of no-doc loans is they don’t require the same steps for income verification. Instead, lenders use a different process to verify a person’s income.

For example, URBChicago.com offers loans that forego the routine income-verification process. If you can’t prove your income with pay stubs, you might want to check them out to learn about other options.

Why People Turn to Them

One benefit you have with self-employment is that you’re the boss. You run your company, make the decisions, and don’t have to clock in each day. You also have the option of working hard to make more money.

You also get the perks of writing off your expenses on your taxes. The downside is that you might not take a regular paycheck, making it difficult to prove your income for loans.

Fortunately, no-doc loans provide a way for people with non-traditional income sources to get mortgages. They do this by accepting alternative forms of proof of income.

These loans are not only for self-employed individuals, though. Anyone with a non-traditional source of income can benefit from no-doc loans.

For example, if you have a job that offers irregular pay, you might not have pay stubs. But, even if you do, they might not prove that you earn a steady income.

How Lenders Evaluate Loan Applications

No-doc loan lenders use various tools to evaluate a person’s income and finances before approving their applications for the home loan approval process. Here are several important concepts to know about this process:

Credit Score Requirements

Every lender that offers these loans has credit score requirements in place. So while you’ll need to check with a lender to learn more about these, you can expect them to require a fairly decent score.

Lenders expect borrowers to be creditworthy, and you can prove this through a high score. However, if your score isn’t as high as you’d like it to be, you might benefit by spending some time working on it.

If you can improve your score before applying for the loan, you might increase your chances of approval.

Down Payment Requirements

Secondly, lenders reduce their risk levels by requiring down payments with these loans. Again, you can check with a lender to learn more about the rules that apply with down payments.

You might want to save around 20% of the home’s purchase price to offer, but the percentage might be different, depending on the lender you use.

Ways Borrowers Prove They Can Repay Their Loans

One of the top things to know about these loans is how you can prove your income. What methods do lenders accept as proof? Most lenders accept several options.

First, you can offer your tax returns from the last couple of years. These should show that your business earns a profit that you can use to repay your loan. Tax returns also show that you have an established business.

Next, you can use your bank statements to show a steady cash flow of money entering your account.

In some cases, lenders won’t ask for any evidence of income. They may ask you to write down your income and sign the document. Your signature is all they might need.

The Benefits of These Loans

Using a no-doc loan is a great option for anyone that doesn’t have verifiable income through pay stubs. These loans provide a way to borrow money to buy a house when traditional lenders won’t give you the time of day.

The loan repayment for no-doc mortgages works just as it does with traditional mortgages. You borrow a specific amount of money, which is your principal balance. You repay it over time with interest.

When you make your last payment, you satisfy the loan requirements. You can also refinance to a traditional loan if you ever decide to and meet the requirements for traditional loans.

Choose a No-Doc Mortgage to Buy a Home

A no-doc mortgage is an excellent option for anyone with an unverifiable income. If you fall into this category and want to buy a house, this could be your solution.

You can talk to a lender that offers these loans to learn more about them.

If you enjoyed learning about no-doc loans, you might enjoy other articles on our site, so check it out today.

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