No-documentation, or no-doc, loans are loan agreements in which the borrower has declined to provide information on income and other aspects of his or her financial status. Often, this type of loan is used in real estate circles to finance mortgages when the applicant does not wish to provide financial details or when the borrower does not meet the qualifications for other types of loans. In general, no-doc loans are arranged as a mortgage will require the applicant to provide a larger down payment before the mortgage is granted.
It is important to note that the lender is still likely to contact credit reporting agencies and obtain information regarding the current FICO or credit rating of the applicant. The information regarding any negative data found on the credit report will be considered before the loan is approved. Should the lender feel that the applicant is worth the risk in spite of the lack of data on salaries, wages, or other financial assets, the terms and conditions of the loan are structured and a formal offer is made to the applicant.
While no-doc loans require a substantially higher down payment than other types of mortgages, this arrangement can be ideal in several instances. People who are self-employed can often take advantage of this type of loan option to secure a home loan. Employees who work in professions or vocations that are seasonal in nature may also find that no-doc loans are the best option available for obtaining loans for real estate purchases. Even people who are unemployed may qualify for loans of this type under certain circumstances.
Most examples of the no-doc loan do require that the borrower pledge the acquired real estate as collateral for the duration of the loan. This provides the bank or broker with the ability to take control of the property in the event that the borrower fails to make payments on time. Often, taking control of the property is done without providing the option of renegotiating the applicable terms. This means the debtor may have little or no recourse in the event of an unanticipated illness, job loss, or any other factor that makes it difficult to make the monthly payments on time.
Not all banks and mortgage companies provide the option of a no-doc loan. Without documents or some type of proof of income, applicants are not able to secure loans from these institutions. However, it is relatively easy to find finance companies that do offer no-doc loans. Along with local resources, the loans can now be applied for an approved online.
Along with the larger down payment, it is not unusual for a no-doc loan to carry a higher interest rate. The higher rate of interest provides some additional protection for lenders and provides equitable compensation for the amount of risk they assume in approving a loan without requiring all the financial details necessary to obtain more traditional mortgage loans.