The housing market was hot in the early and mid-2000’s, as most of us remember. That was when no documentation home loans became popular. In 2017 it seems that no doc loans may be making a comeback of sorts.
Lenders are introducing new more aggressive home buying programs with limited and reduced income documentation required. People love that no doc loans are typically easier to process and in many cases escrow can close faster than with traditional mortgages.
No Doc Mortgage Loans Have Been Streamlining the Home Buying Process this Year!
The reason is that home prices increased so much in many areas that people could no longer qualify for regular mortgage loans. The lender then used no documentation loans to get them in a house. The no doc mortgage loan was a popular program before the default rates kicked in.
A no doc loan usually meant there was no employment, income or asset verification. The borrower was qualifying for a mortgage almost entirely on their credit history, and the no doc mortgage lender used that to decide whether to approve or reject.
As you can guess, many of the failed mortgages from this era were no doc loans, also known as a stated income mortgage. As loan as the borrower had average or better credit, they could get a home loan, and even a jumbo loan.
Before the mortgage mess, there were many subprime lenders who would offer these no doc loans. Many lenders only let you finance 80% of the value of the house if you had no documentation. However, if you were doing a refinance and you had equity, you could sometimes take out a new mortgage with no documentation and also avoid getting a higher rate.
Those no doc loans are gone. However, just because the mortgage crash killed the no doc mortgage market, this is not to say that you cannot get a limited income documentation loan today. You can. Whether you want to or not will depend upon your financial situation and your credit. In 2017 the no doc loans are available for borrowers that lenders consider a lower risk factor than in the past.
Limited Documentation and No Doc Loans in 2017
With very limited exceptions, it’s very difficult to get a no documentation loan today. The only way is if you have 740 or higher credit. After all they have nothing else to go on if you are not submitting financial docs.
But you should know that there will be a pricing adjustment for a no-income loan if the loan to value is 80%. You should expect that you could pay as much as a 2% rate premium to get the limited or no doc loan.
So if the current rate is 4%, you will likely pay as high a rate as 6% to get your limited doc or no doc loan.
Is this worth it for many home buyers? It might be or it might not. But let’s assume that you do want to get a limited documentation home loan in 2017. Here are some reasons to consider it:
#1 You Really Need to Buy a House Now
There are some situations where it is imperative that you become a home owner today. You may need to own real estate in the US for an immigration purpose. Or you may need to buy a home so that you can enjoy the tax advantages in April; some people need a major tax write off quickly and will want to buy a home to write off mortgage interest. Buying a home with zero down-payment loan can be tricky if are unable to document your income for the underwriter. Most no documentation mortgage programs will require a down-payment.
#2 Interest Rates Are Still Low on No Doc Loans
Since Trump won office, there has been a small but significant rise in interest rates. The Federal Reserve raised rates in December 2016. There is a decent chance that there will be two more rate hikes in 2017. The Fed has indicated as such, and the markets have priced two rate hikes into the current rates.
For a 30 year fixed mortgage today, you are looking at a low 4% rate. This is still very low, historically. But if the Fed follows through and raises rates, you will be paying higher rates soon. And with a premium of 2% on top of the rate for a low doc loan, getting your loan could become expensive. It is important when shopping for the best no doc mortgage that you get the lowest rate with the least amount of fees possible.
#3 Inflation Is Rising
A possible sign of a heating up economy is inflation which was near a high in February 2017 for several years. Increasing inflation is often a sign of rising economic activity. This means you will probably see rates rise soon. So anyone who wants a limited documentation loan soon, will be better off to act fast.
#4 Trump Effect?
The stock market is rising fast, and has gone up 11% since Trump won office. The IMF has increased estimates of GDP growth for 2017 and 2018, so we think the rates will climb higher. This will cost you more for your limited doc loan.
Another option you may want to consider is to get a state income home loan. In this case, you would state your income each month on your application. Like the no doc loans, you would not verify the amount with financial documentation.
This is a simpler way to get a mortgage that is normally for self-employed borrowers with more complicated tax situations.
The lender would not check your income, but you will still need to verify that you are gainfully employed. If self-employed, you may need to get a letter from a CPA vouching that you are self-employed.
Keep in mind on a stated income application that your stated income needs to be realistic for your job. If you are a teacher and you claim an income of $15,000 per month, you will probably be declined. People looking for no doc loans need to be more reasonable.
Final Thoughts on the No Doc Mortgage Loan
Limited income documentation loans are possible and now could be a good time to get one before the interest rates climb much higher. You will be paying a much higher rate if rates go up another percentage point in 2017.