Reduced Documentation Loans - There are many programs available that are for people who may not qualify for the standard full documentation required by many different lenders. Some of reduced documentation loans compensate for the lack of supportive documentation that may need to be required.
Some of the examples are as follows:
Stated Income, Verified Assets or SIVA
Stated Income, Stated Assets or SISA
No Ratio
No Income, No Assets or NINA
True No DocA Stated Income Loan requires less paperwork than normal for approval. The income is stated on the application. Tax returns, w-2 forms, and pay stubs are not required. The stated income should be reasonable for your occupation
Stated-Income Stated-Assets mortgage is a type of mortgage program in which the borrower does not need to furnish proof of his income and assets. In other words, no paystubs, W2's, tax returns, bank statements, are needed to document the borrower's financial ability to repay the loan. The applicant's income is merely disclosed, or stated, on the Uniform Residential Loan Application.
When your scores are high enough the lender may even offer a reduced documentation program at no additional cost to you. They look at the higher scores as you being responsible enough to know what you can afford and what you can not. Also the higher scores equates to less risk for the lender.
Reduced documentation loans are not an opportunity to falsify income in order to obtain larger loans. This type of mortgage fraud is being more closely investigated by lenders and the FBI.
Reduced Documentation loans are for borrowers that have unverifiable income or assets. Reduced documentation are also for borrowers that do not want the hassle of locating documents or who want to keep their information private. They are willing to pay a premium for this usually paid for with higher interest rates or points.
A Stated-Income loan for a self-employed borrower means you do not have to provide income documentation but you do have to provide proof of employment. Past two years business license will usually suffice.
Self Employed borrowers typically use reduced documentation loans due to tax deductions reducing the actual income/profit of their businesses.
Cash tip earners also use reduced documentation loans since their cash income is not documented.
If your credit scores are high enough many lenders will offer your reduced income documentation. This reduces the amount of documents needed to prove your employment history, income, or assets. Ask your Preferred Mortgage Professional if your credit qualifies for a "rapid" processing feature.
Many lenders even offer reduced documentation loans for borrowers who have salaried, W-2 type employment. Why would a lender do this? In addition to the salary, the borrower may have other income which cannot be documented. Examples of such income include a side business, room rental, income from loans to family or others and many other situations.
Some reduced doc programs only need 6 months worth of bank statements.
Another example of reduced documentation, or alternative documentation, is using 6, 12 or 24 months bank statements to verify income. With a bank statement program most lenders will add up the total amount of the deposits for said number of months and then divide that total by the total number of months being used and they will use this amount for your average monthly income. Some lenders will only use a percentage of the avg. monthly income calculated but most lenders will use the full amount.
The Reduced Documentation loan is geared toward the self-employed borrower and those whose work situations don’t fit the standard mold. It reduces the amount of paperwork you need to gather, eliminating many of the steps required when applying for a loan.
Choosing a reduced documentation loan should not be used in order to afford more of a house than you would be able to on a full documentation loan. These loans are designed to accommodate those customers with hard to prove income.
When using bank statements to qualify for a limited documentation loan you typically can use your personal bank statements up to 100% of the deposits over the specified period of time (6, 12 or 24 months) and when using business accounts it is typically 75% to 80% of the deposits.
Often the lenders offset their risk with making these loans by increasing the interest rate or reducing the LTV.
Many times if your credit score is 720 or higher, you can obtain a reduced documentation loan for the same rate as if you fully documented your income & assets.
No Doc Loans - A No-Doc loan allows the borrower to apply for a loan and not have to state their income, employment, assets or even submit bank statements. This type of loan is often time appealing to Self-employed, single women who do not have the required two year track record and many successful entrepreneurs who simply don’t want to reveal how much they make. In doing a No-Doc loan the borrower will have a one percent higher rate on average than most conventional loans.
These loans are based on the value of your home and your credit report. Interest only options are available including the 30 year fixed rate programs.
No Doc Loans are also called No Income No Asset. They are not the same as Stated Income, Verified Asset or Stated Income, Stated Asset.
No doc loans are often confused with stated income loans but there is a difference. In a stated income loan the method of earning income must be proven but the borrower is allowed to simply state the amount of that income without providing any proof. A no doc loan means that no documentation at all regarding the amount or the method of earning the income is required.
Great loans for people who have lost their job or in a case where the amount of stated income would seem unreasonable.
No Doc programs are available on loans as great as $1 Mil to 100%
In some cases a lenders guidelines for a no doc loan even waive the need for a full appraisal, or the requirement that the borrower have the property for at least 12 months before refinancing. This is a useful program for investment property owners who need to draw cash out of the equity of a property that was rehabilitated. Most lenders will not use the new appraised value with out additional documentation and "seasoning" of the property for at least 6 months and usually 12 months.
Individuals who live off of equity and debt investments very often have no means of verifying employment or income due to a variety of factors, and are excellent candidates for no-docs / NINA type loans.
No doc loans are much easier to process than the normal loans. There is very little paper work in comparison and not much to verify.
There are lenders offering 100% no-doc loans, but to qualify you must have excellent credit and reserves. Often times this is limited to borrowers who have owned property in the past.
Past credit history and credit score is very important when applying for a no documentation loan since the lending decision is based on extremely limited information.
A NO-DOC loan is good for borrowers who just relocated, or have recently become self employed.
A No Doc Loan means that you do not have to state your income, employment, or assets. The lender's main criteria for approval are your credit history and the equity in the property. These loans are available with as little as 5% equity or down payment! A No Doc Loan is great for those who have lost
their jobs, recently retired, and newly self-employed people, among others
No doc loans are ideal for people who have changed careers or have income that is then being unreported.
No Doc loans require the least documentation and are for buyers with good credit. The buyer provides minimal information and the lender does the rest. No Doc loans are great for people who want maximum privacy.
NO doc loans are not a opportunity to lie about your income to obtain a more expensive house then you can actually afford. You are responsible for providing an accurate figure when the loan officer ask's for your income amount. The loan officer should not coach you or fill in the amount for you. If the loan is audited and fraud is discovered you and or the loan officer can be held accountable under the law.
In a soft real estate market, homeowners with no equity in the homes are much more like to default on their mortgages. Because of the intrinsic risk of default associated with No Documentation Loans, most lenders require that the home buyer commit a bigger down payment towards the property.
The first time homebuyer needs to be careful on payment shock. For example- the borrower has been paying $1000 as his rent. The lender usually doesn't want to see the borrower making more than $1500 as his/her mortgage payment (50% payment shock). Unless the broker could present some compensating factor, the lender has a limit on how much payment shock the borrower should face.
No doc program for a first time home buyer is available as well. However, the first time home buyer is required to produce a legitimate verification of rent for past 12 months with no lates. The lender wants to make sure that if the borrower is a responsible on house payment.
SISA Loan - A SISA (stated income, stated assets) is a loan program were the borrower(s) state on the application what their income and assets are, but the lender does not ask for documentation for the amount stated.
Stated Income, Stated Asset programs are not the same as No Documentation programs. Employment will more than likely be verified.
Stated loan programs can help a borrower acquire property which is in line with their true purchasing power, irrespective of reported personal income. It's an excellent choice for investors.
Often times self employed borrowers will require a SISA loan because they may write off most of their income for tax purposes.
In order to justify the higher risk associated with Stated-Income/Stated Assets mortgages, banks charge higher interest rates on SISA loans than on Full Documentation loans.
SISA loans usually require a higher credit scores. Generally the higher LTV(loan to value)the higher the score needed to qualify.
And because of the higher interest rates you would only use this program when you are in a situation in which this is the only way to get qualified.
Choosing a stated income, stated asset loan does not mean that you will not furnish any documentation to your lender only that documentation will be limited. For example Instead of self employed borrowers providing tax returns you will need to provide a copy of your business license for the most recent two years or a letter from your CPA stating that you have been self employed for at least two years. To state your assets you will need to disclose your bank name or who the asset account is with.
Choosing the SISA loan does not guarantee an approval. The income and the assets that are stated still must be reasonable and is subject to an underwriter's approval.
For self employed borrowers the SISA is a more common as cash flow may show a lack of reserves typically needed for traditional loan programs.
Many conforming lenders do not require IRS form 4506 to be signed at closing when doing a SISA or NINA loan. It is best to check with your lender or broker before closing to see if you are required to sign it.
Stated Income Stated Assets programs sometimes are abused because some believe that income and assets can be exaggerated enabling the borrower to qualify. The program is actually for borrowers who have hard to prove income sources and assets but lenders let them state the true amounts. Lenders usually only let borrowers who have excellent credit history use this program.
Another loan to consider is the NINA (No Income No Asset). The income and assets are not disclosed on the application and not verified. Employment is also stated and not verified on a NINA. Lenders will typically lend up to 95% LTV on these loans with very good credit.
Some loan programs only allow self-employed borrowers to state their income and assets while others allow both self-employed and wage earner borrowers to use this feature.
When a wage earner states their income the underwriter will often use salary.com or other similar resources to determine if the income stated is reasonable.
For a wage earner who needs to have more income stated than what their job allows, comparing the figure from salary.com, they borrower needs to consider going for no ratio product. This program will not state any income at all; thus the underwriter doesn't ask whether borrower makes enough money to qualify for the loan. Usually, this program requires higher FICO score as you try to obtain higher LTV.
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