No doc loans are the perfect solution for people in a couple of very specific categories. But first let me tell you what a no doc loan is. It stands for a no document loan which is just what it sounds like. You get the loan without a lot of paperwork from your end. If you have a regular job, regular paycheck, and have been at the same job for some time, then this kind of loan would not be the best choice for you. You have the paperwork that loan companies cherish to grant you a regular loan.
The categories of people who might be interested in no doc loans are those who work for themselves, are unemployed, or who get paid in cash and those who want to maintain financial privacy. Anyone who works for himself or herself or anyone who is unemployed knows that they stand very little chance of getting a loan. They are considered high risk even if they have the cash to pay their bills on time. They just don't have the paperwork that banks and mortgage companies want.
If you are thinking that there must be a catch, you are right. Originally, no doc loans were designed for business people who may not have claimed their full income on their income tax. Since then, many other people have discovered the value of no doc loans. People who work for cash may not claim everything they made, so when they apply for a regular loan they can't qualify under the usual income statement demands that most lenders make. There is a flip side to this - those who get paid in cash might claim more than they really make to create a better financial picture for themselves. In either case, there is no way for them to provide certifiable paperwork. Also, there is the person who is hiding money from family, a spouse, or colleagues. Without no doc loans that person would not be able to borrow money at all.
Banks and mortgage companies are in the business of lending money and the more they can lend the better. But they still need security. One of the ways that they try protect themselves a bit more, when there is no requirement for a lot of documentation, is that they look for people with a good credit rating - or at least for those who do not have a bad credit rating. They might also charge higher interest rates or require substantially higher down payments.
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