Advantages and disadvantages of mortgage loans without documentation

In today’s market, there are many borrowers who don’t fit the traditional mold, especially in terms of their employment, ie, commission salespeople, self-employed, investors, etc. Understanding this fact, the mortgage industry has adapted by creating programs known as no-document loans where borrowers qualify based on their credit history without documenting income and assets. Here are some pros and cons to consider if you fall into this category:

Pro

1. Simple subscription

If this is the only loan you’ll qualify for, at least there’s good news. Since you’re not testing anything, there’s not much you can do. Your lender will review your credit history to make sure you qualify. The underwriter will then take a close look at the residential home appraisal and credit profile. If those two things check, it’s usually clear to close.

cons

1. High interest rates

Since you are not proving your ability to repay the loan, you can expect to pay much higher interest rates than a typical borrower. As long as you present a high risk to your lender, you will have to pay more.

2. Higher down payment/less access to equity

The more you borrow against the equity in your home, the riskier you are for your lender. When you buy a home under this program, you’ll need a hefty down payment, and when you refinance, you’ll have less access to your equity.

Although there seem to be more cons than positives to loans like this, they are still your best option if you can’t prove your income and assets. Consider the alternatives and take one if you really need it. Then start planning how you can refinance in a few years under better circumstances.