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Low-Doc and No-Doc Loans

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Low documentation (low-doc) and no documentation (no-doc) loans are appealing because they simplify the loan process. You can guard your privacy by submitting fewer documents, and you can avoid the hassle of proving your difficult to prove (i.e. non W-2) income. On the other hand, however, the reduced documentation makes these loans risky for lenders, so these loans have higher costs, and they're generally only available to borrowers with good credit. Those similarities aside, however, there are important distinctions between the three main types of low-doc and no-doc loans.

Stated Income Loans--These low-doc loans depend solely on the borrower's word and require the source of the income rather than the exact amount of income. Thus, borrowers with greater income than their paperwork shows--borrowers who are paid in cash or borrowers who write off a substantial portion of their income--may prefer stated income loans. The interest rates on these loans, however, are generally one-eighth to one percent higher than are rates on standard loans.

No-Ratio Loans--These loans are based on a borrower's assets rather than income. Thus, they allow borrowers with a high debt-to-income ratio to silence that ratio based on their abundant assets. No-ratio loans carry an interest rate one-half to three percent higher than standard loan rates.

No-Doc Loans--Sometimes called no asset no income (NINA) loans, these loans only require your name, social security number, and the address of the property. These loans are fairly rare and primarily benefit wealthy individuals with exceptional credit who guard their personal information. The interest rate on no-doc loans, however, is often three percent higher and the down payment is ten to twenty percent higher than you would find on a standard loan.

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