What is a No Documentation Mortgage?

A no documentation mortgage is a loan for a residence or vacation home that requires little in the way of proof of income from the borrower. These loans may also be called no income/no asset verification loans or NINA mortgages, and they have some appeal to people who cannot prove income sources, but who have strong credit ratings. They can also be disadvantageous financially, since loans may be offered at several points below prime and can be more costly. Borrowers who can provide documentation on income are advised to stick to loans that are less expensive over the long run, and there are a few intermediary or low documentation loans that might be a good alternative.

There is no argument that a no documentation mortgage is the easiest to apply for. People simply provide their social security number so their credit can be evaluated. A lender can’t even assess debt versus income ratio, so a very high and desirable credit score is just about the only way to obtain a NINA mortgage. Downpayment size may also influence a lender’s decision to offer one of these loans. If downpayment is very large, the likelihood of getting a NINA increases.

Many wonder why anyone would want a higher priced loan if he or she has any means of verifying income. There are actually several reasons why a no documentation mortgage can be attractive. First, there are people who make money in ways that isn’t documented, such as by working under the table, working on tips, or by getting paid in non-traditional and perhaps, occasionally criminal ways. These people literally can’t prove their income and could possibly owe huge amounts in back taxes which raises suspicions about their work activities. It should be firmly stated that many people who make income legally and pay taxes have a hard time verifying earnings and might search for a NINA loan.

Alternately, the no documentation mortgage can be useful for those who need to guard their privacy. Celebrities, for example, might see this as a good option. They don’t have to give information about income, work activities, etc., when applying for loans. Other people simply hate paperwork or want the most expedient means of getting a loan, and with excellent credit, they might be able to use this method of borrowing.

There are several types of loans called low documentation, where borrowers might give more information about their finances, though still not as much as is needed on a full-documentation application. More information could include statements of present income, submitted yearly, or lists of debts or assets. Borrowers still pay for the privilege of providing less information, and this might cost a quarter to half a point below prime, to two or three points, depending on how much information is provided. From a financial prospective only, the low or no documentation mortgage is not sound, but the extra cost may be worth it for people with special circumstances and strong credit scores.