No Documentation Loan
It is a known fact that the more documentation you give the mortgage lender, the chances of getting a lower interest rate is higher. This documentation is in the form of employment, income and credit history.
However, there are many home buyers who do not want to divulge their personal information and prefer to maintain their privacy. These home buyers are more than willing to pay higher interest rates although they have a good income, savings and / or credit history. What they opt for is a No Documentation or Low Documentation loan and it gives them the privacy they want in exchange for a higher interest rate.
A typical borrower opting for No Documentation home mortgage is one who does not want to present his financial history to the lender. In certain cases it has been seen that home buyer use their inheritance to secure a mortgage or have fluctuating income from their own business.
What makes home buyers go for a higher interest rate mortgage? The reason is the ease of the process. The home buyer provides his name and social security number along with the details of the property he wants to purchase. He leaves the rest to the lender.
There are basically three types of No Documentation and Low Documentation loans. They are as follows:
No Documentation Loan
This type of loan requires the least documentation and is primarily for home buyers who have good credit scores. The home buyer gives the lender minimum information and leaves the rest up to the lender. This loan is excellent for home buyers who are looking to have maximum privacy.
Low Documentation Loan
This loan is ideal for home buyers who work on cash or commission basis. These are buyers who do not have a steady and consistent salary as it keeps changing from month to month. Here the home buyer has to disclose his earnings of two years and he might also be required to show his tax returns along with bank statements.
No Ratio Loan
Ideal for borrowers who do not want to disclose their income and hence, their debt-to-income ratio. Usually the borrower has good credit standing with enough assets not to worry the lender about risking his money.
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