If you have had income for two years that can be verified and good or excellent credit scores, you are qualified for a mortgage. There are however individuals whose income is from commissions or investments, are self employed or may not be keen on revealing their financial details. Such persons can consider a no doc mortgage loan. These types of mortgages are different and need to be understood.
In no doc mortgages disclosing of the income is not required, but you may still have to produce returns submitted for taxes, profit or loss statements or other documents, and also have your credit checked. A no doc mortgage is essentially meant for persons with good credit, so if your credit is not up to scratch, this may not be the right mortgage for you. Loans against no doc mortgage are available for those who want to protect their financial privacy or do not have a history of income that is more than the minimum specified period of two years. A disadvantage of such loans however is that the interest rates will be higher than those normally available. There is also a possibility that besides the requirement of a credit rating that is good, you may also be required to make a substantial down payment.
There are three types of no doc mortgages available. The first is the one that is suited to those who are self-employed and depend on commissions. This stated income type of mortgage would require the person to produce documents indicating earnings for at least two years. Tax returns or statements showing profit or loss can be used instead of pay stubs and W2 forms. While the need for showing income still exists, this mortgage is useful for people whose income sources are irregular or unconventional.
People who live off their investments can apply for a no ratio loan. This type of no doc mortgage does not require an income declaration from the borrower. However proof will have to be given of assets, investments, money in the bank and any business ownership. Such no doc mortgages however can attract higher rates that can be up to 3 points higher than the conventional rate.