Customers who have little time to apply for a loan and utilize the money before their window of opportunity closes have the option of taking out a no doc equity loan. Short for “no documentation”, this type of loan is effectively a faster way to have the borrowing process from start to finish by incurring a higher interest rate. No doc loans (and loans with minimal documentation) are less common in today’s economy, as the housing market has lost considerable value and mortgages are higher than ever. As a result, it is very difficult to find a bank or creditor willing to take on such rapid transactions. Pristine credit, a considerable value in collateral, a high interest rate, or all three may be required for the loan qualification, so be very certain that your financial situation is capable to handling a no doc equity loan’s qualifications.
The greater documentation that you can show to a bank or mortgage lender, the lower one’s interest rates will be. Banks are not risk takers in general and a customer without a good deal of proof of credit history, employment history, and income verification will have an extremely difficult time finding a loan. However, some homeowners place a higher value on personal privacy than they do interest rates, and thus are willing to take on the extra financial burden of a no doc equity loan in order to retain their personal information — even if they have an unspectacular or good quality credit and savings history. However, if ease of mind is the most important quality for a customer’s loan process, a no doc loan gives the privacy at the cost of a higher rate of mortgage payments.
There are three different types of no doc or low doc loans that customers can take out. Each is similar in that they will result in increased interest rates, but some have separate application factors and processes. The standard no doc equity loan takes the least amount of formal documentation (or sometimes none at all) of income and employment history. These are, by far, only given to customers with excellent credit ratings, as banks take on an extreme risk by giving these loans to anyone but the best applicants. The borrower provides some information that will convince the bank of their property status, such as the deed to the house, or enough personal information to qualify, such as social security information. The lender then approves or rejects the loan.
At a step above (in terms of disclosure) is the stated income low doc loan. For this type of borrowing plan, the customer will have to declare all of their income, earnings, and sometimes their spending history. Banks usually ask for the previous two years, though some require more given the situation and economic climate. These types of loans are preferable for the privacy minded who make a living off cash or commission jobs without consistent hour-by-hour payment, such as salesmen, bartenders, or small business owners.
Borrows who do not wish to disclose any aspect of their income can apply for a no ratio mortgage loan. Without information available to the bank on financial stability, there is no debt to income scale that the bank or credit agency must take into account. No ratio borrowers must also have good credit in order to be approved, and usually have to have enough assets (in property or liquid form) to make up the lack of income information. If a borrower has difficulty gaining the proper information for a mortgage, the no ratio loan is the ideal source of funds.
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