What's up, Doc?
No-Doc and Low-Doc.
New Loans Easier for Self-Employed
Do you run your own business
and write off a lot of business expenses against your income taxes? Even if you
make a lot of money, applying for a mortgage loan could be a real hassle because
it's harder to demonstrate your gross income. On a standard loan application,
you're stuck with going through your IRS returns for the last two to three years.
There is a way, however, to reduce the paperwork and scrutiny, according to
The Washington Post, especially for people prepared to make a sizable down payment.
That's a No-Documentation or Low-Documentation loan. No-Doc and Low-Doc loans
work around the problem of proving gross income to the lender by reducing the
paperwork requirements. And you don't necessarily have to be self- employed to
What type of animal are these loans? That depends on which lender
you talk to. In a No-Doc loan of the purest form, there would be no verification
of income, employment or assets. No paper chase--no hunting down of pay stubs,
W-2s or tax returns. But at a minimum, your lender will still do a credit report.
In a Low-Doc loan, at least one of the factors--income, employment or assets--will
be verified but the overall paperwork is significantly less than a standard loan
application. Asset verification, for example, might require you to provide bank
statements to show you can make a down payment.
What's the price for these
quicker-to-obtain, nearly paper-less loans? Typically, a down payment of at least
20-25 percent. And you will pay a slightly higher interest rate, too, about 1/8
to 1/4 percent above the market for standard loans. To figure the extra cost,
remember your monthly payment will be 2 1/2 percent higher for every 1/4 percent
you add to your interest rate. Thus, the difference in a monthly mortgage payment
for a $200,000 loan at 7.25 percent interest vs. 7 percent would be $33.75 per