Unemployed? Get a Mortgage with a Reduced Documentation Loan
April 19, 2021at9:30 PM
Traditional wisdom dictates that mortgage approval requires stacks of paperwork, including bank account statements, tax returns, W2s, pay stubs, and more. It’s a daunting process, and if you’re unemployed or have non-traditional employment, it can feel like homeownership is impossible. But there are lesser-known mortgage products available that an experienced mortgage broker can offer–such as reduced documentation loans.
What is a reduced documentation loan?
Aptly named, reduced documentation loans have far more lenient paperwork requirements than traditional loans. The more documentation you can provide, the better the mortgage your broker will secure for you. Every document is a testament to your financial security and ability to make on-time payments–critical information lenders want to see.
When do lenders offer low documentation loans?
Reduced or low-documentation loans used to be much more common. Before the 2008 financial crash, you could simply tell your income to a lender and get approval for a mortgage. Now, there are federal regulations in place through the Consumer Financial Protection Bureau that ensure borrowers can repay the loans.
Lenders won’t provide a low documentation loan to just anyone–you can’t just state your income and get fast approval. But some lenders understand unique borrowers can repay the loan but don’t have the documentation to prove it.
Who are these loan products for?
If you have traditional employment and the documentation that typical mortgages require, your best option is pursuing a different mortgage product. Your mortgage broker will get you a better rate and repayment options. This loan product is for specific individuals who don’t have the stack of paperwork to support a traditional application.
Self-employment: you may under-report your income for taxes and find you don’t have enough to qualify for a mortgage when you need to.
New business owners: those who are ready to buy but don’t have the years of recorded earnings required by lenders.
Undocumented income: if you don’t report your income, or it’s primarily from unemployment benefits.
You might consider a reduced documentation loan if you can’t find the array of documentation needed for a mortgage or want to keep your income source private.
There are downsides to a low documentation loan.
Given the hassle of gathering all the paperwork lenders require for traditional mortgages, you might wonder why everyone doesn’t opt for a low documentation loan. They come with certain downsides, so they aren’t ideal unless you have no other option.
Lenders are taking a more significant risk with low documentation loans, so they often place these mortgage products at a premium. You’ll have to accept a higher interest rate, and lenders will often inflate the loan processing fees.
Essential requirements to qualify for a no-doc mortgage loan.
You have to convince a lender to give you a mortgage when you don’t have the correct paperwork. These are the things that make you come across as capable of repaying the loan, at a glance:
Excellent credit: at minimum, you’ll need a score over 720.
Substantial savings: a lender will want to see several savings and investment accounts with significant balances to make payments on the loan.
Large down payment: most mortgages need a 20% down payment, but for no-doc loans, you’ll likely have to put down as much as 40% on the property.
These loans aren’t suitable for everyone, because of the substantial amounts of cash and investments you need to have on hand for a reduced documentation loan, they aren’t suitable for everyone. Working with an experienced mortgage broker is the best way of finding the ideal loan for your lifestyle.
Work with Atlas Crown Mortgage for reduced documentation loans and other unique mortgage products.
The Atlas Crown Mortgage team prides itself on working with clients to find mortgage products that fit their lifestyle and empower their future homeownership. Unlike banks, we don’t trap homebuyers into contracts that have devastating consequences for their finances. We’re only on our clients’ side and work hard to find a mortgage product that fits their needs.