Are No-Doc Mortgage Loans Still Available?
Question: “Are there any lenders making no-doc mortgage loans these days, or is that a thing of the past? I’m just wondering what I will face when I apply for a home loan later this year. Thanks.”
Most lenders are requiring more documentation these days, as opposed to less. There are some obvious reasons for this (housing crash, record numbers of foreclosures, recession, etc.). There are also some new lending rules regarding the verification of documents.
As a result of these changes, few (if any) mortgage lenders are offering no-document / no-doc mortgage loans these days. Most are erring on the side of more documentation — as opposed to less.
The No-Doc Mortgage Loan Defined
Before we go any further, I should clarify the terminology being used here. Here’s a helpful definition for readers who aren’t familiar with this topic:
No-Doc Mortgage — This type of home loan requires very little documentation from the borrower. “No-doc” is short for no-documentation or no-document. This financing method has been around for a long time, but it became extremely popular during the housing boom of 1990s and early 2000s.
It’s harder to get approved for a home loan today than it was during the boom years. Lenders are requiring better credit scores, less debt, bigger down payments, and more documentation submitted during the application process. In other words, they are doing exactly what they should be doing — something they got away from during the “easy credit” days of the housing boom. As a result, there aren’t many no-doc mortgage products available anymore.
This isn’t the only type of loan that has been temporarily abandoned. Subprime loans (for borrowers with bad credit) and no-interest loans are also hard to come by these days. It’s easy to understand why. If you owned a bank, would you lend somebody $200,000 or more for a home purchase without verifying their credit and income?
When you apply for a loan, you’ll have to provide a variety of documents for the lender’s review. The exact list of mortgage docs will vary from one lender to the next, but the “usual suspects” include the following:
* The mortgage application form itself
* Your W-2 statements for the last two years
* Tax returns for the last two years
* Copies of your recent pay stubs (for the last few months)
* Bank statements for all of your active accounts
* Information regarding your current and past employment
* Any other documents requested by the lender
With a no-document loan, very few of these items are required.
I mentioned some new lending rules earlier. Specifically, I’m referring to the federal government’s Ability-to-Repay rule. The ATR rule took effect in 2014, and it requires lenders to verify a borrower’s ability to repay the loan obligation at the time of origination.
According to the Consumer Financial Protection Bureau (CFPB), the Ability-to-Repay rule requires creditors to “make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling.” In doing so, it virtually eliminated the use of no-doc mortgage loans.