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