If you are refinancing your current mortgage but are concerned about how you will prove your income to the mortgage lender, a no doc or low doc mortgage could be right for you. There are a number of reasons for refinancing a mortgage; these reasons include getting a lower interest rate, dropping private mortgage insurance, cashing out equity, or lowering your monthly payment. When you qualify for a new mortgage the lender will require documentation of your income, employment, and assets.
No doc loans allow you to qualify for a new mortgage without providing this documentation. There are reasons why some homeowners are unable to document their income. People who work on a commission basis or are self-employed often find it difficult to document income for sustained periods of time. Other homeowners are very particular about their privacy and would rather pay a higher interest rate than disclose to the world their private financial information.
In order to qualify for a no doc mortgage loan you must have excellent credit. Mortgage lenders are not going to take your word that you can afford the mortgage payments unless you have a sterling credit rating. The interest rates for refinancing with a no doc loan are higher than a traditional mortgage because of the increased risk to the mortgage lender. A low doc mortgage differs from a no doc loan in that you are providing the lender with some documentation in the form of your stated income and employment history. Low doc mortgages come with lower interest rates than no doc loans because there is less risk for the mortgage lender.
No doc loans are ideal for the homeowners that want to protect their privacy. Low doc mortgages are good for the self employed that can state their income and show employment history to back up their stated income. Because no doc and low doc mortgages come with higher interest rates than traditional mortgage loans, refinancing your current mortgage with a no doc or low doc mortgage will probably not get you a better interest rate; however, you may be able to secure more favorable terms or cash out equity in your home. You will need to research no doc mortgage lenders and carefully compare loan offers to find the best deal for your new mortgage loan. To learn more about refinancing your mortgage and how to avoid common mortgage mistakes, register for our free mortgage guidebook: “Five Things You Need to Know Before Refinancing Your Mortgage.”
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
