So who might want to look into low-doc products?
Surprisingly, a wide range of people. Self-employed businessmen
and women who don't have the two-year track record required for
conventional loans may need them. Active stock traders who don't
want to share their financial history and complicated tax returns
with a lender fall into this category as well.
The more secrecy,
the higher the cost
The cost of avoiding the financial microscope depends on the degree
of secrecy or leniency a borrower needs. A stated-income loan that
still involves verification of assets, for example, might not have
a much higher rate or stricter qualifying standards than its conventional
counterpart. The most lenient low-doc mortgages, on the other hand,
would.
The true 'no-doc' is the ultimate of the easy
loan products. "You do not state income, you do not state employment,
you do not state assets, you give no bank accounts or bank account
numbers, no bank balances, you don't have to source the funds for
your down payment and ... you don't even have to say that you have
a job.
The interest rate premium for a basic no-income-verification
loan starts at about three-eighths of a percentage point on average,
while the full no-doc loan would have a rate about 1 percentage
point higher than a conventional mortgage with a comparable term.
The maximum allowable loan-to-value ratio
often depends on a person's credit, or "FICO," score. While a score
of 620 is considered decent and 660 is very good, for example, someone
would need a 700 or better to get a 90 percent loan-to-value no-income-verification
loan.
Lenders leery of
big leaps
The amount of "payment shock" involved could impact the amount a
person can borrow, too. The term refers to the difference between
someone's current housing payment and the anticipated principal,
interest, taxes and insurance payment a new mortgage would require.
So, while Power Mortgage offers a no-doc mortgage with a loan-to-value
ratio of as much as 95 percent, a borrower who would have to go
from paying $1,100 a month in rent to paying $3,200 for a new home
wouldn't qualify.
Because there are many variations on these
types of loans, experts say consumers may want to use brokers rather
than lenders when shopping for no-income-verification mortgages.
That's because mortgage brokers can sift through several available
options and find a program that meets specific asset or income requirements.
