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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 qualify.

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 month.