No Doc Home Loans
Are no doc home loans the only way to finance your home purchase? That is the case for many people, especially in this economic climate. When a person applies for a loan he or she needs to supply the lender with what is referred to as supporting documentation. In most cases this usually includes, but is not limited to proof of income, outstanding debts and equity in property or other tangible goods. For a multitude or reasons, a borrower may not want to nor be able to provide the lender with this information. Some people believe that withholding information such as tax returns and business expenses protects their privacy. Sometimes these documents are not available at the time the loan is needed. In this case they might want to apply for a stated income loan. When supporting documentation is not provided or available, a borrower may also wish to apply for what is referred to as no doc loans or low doc loans. Unfortunately, no doc loan rates are much higher than loans carrying supporting documentation.
In recent years no doc home loans became a viable alternative to traditional loans or mortgages. A minimum of documentation was required other than proof of equity and good credit. No doc refinancing loans are beneficial when applying for a refinancing of an existing mortgage on property. A no doc equity loan might be sought as a second mortgage while a no doc home loan might be granted for updates or improvements on a residential property. Also, many no doc commercial loans were negotiated. Many of these loans were sought for improvements as well as in the purchase of a business or commercial property.
In today’s faltering market, although there is a greater need than ever before, many lenders are reluctant to offer no doc home loans. Thus, a new type of lender begun to arise, commonly referred to as a sub prime lender. What generally happens is that the lender will finance a no doc loan, a low doc loan or a stated income loan and then seek to sell the loan to a large financial institution or prime lender. Unfortunately, with the demise of so many large banks and mortgage companies, sub prime lenders have been unable to unload no doc loans and are stuck holding them. Many of these sub prime lenders are small companies and individuals. When they are unable to sell those no doc home loans elsewhere, their investment capital is tied up for the term of the loan, which in turn prevents them from issuing and selling future loans because of the lack of operating capital. For these reasons it appears that the demise of no doc loans is on the horizon.
Who knows, the economy may turn around. But for the moment it may be in the best interest of both the borrower and the lender to forgo no doc loans. If you need a loan and have no other options available to you then just be aware that it may be difficult to find a lender willing to finance such a loan. And if you are a private lender and willing to hold that loan or mortgage until the market improves then go for it. Just remember, patience is a virtue.
