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How Low Doc And No Doc Loans Could Be Your Savior
By EchoBay Loans Staff Writer

A no doc or low doc loan can be ideal for a consumer who does not wish to provide proof of income. Some consumers do not wish to provide their income simply because they prefer to keep the information confidential. Others for some reason may not have filed recent tax returns. For some, they just do not want to go through the hassle of gathering all of the documentation required for a conventional mortgage. The most common reason for this is for those who are self-employed.

As a self-employed business owner, tax returns and financial statements are a complicated beast. Many times, the cash flow of the business is not reflected on these documents because of accounting and tax rules. For a business that has large depreciation expenses, a tax return can show a loss when in actuality; the business' cash flow is exceptional.

Also, for many self employed, their expenses are overstated on their tax returns resulting in little income or a loss. Because of this, it can sometimes be difficult for a self-employed person to qualify for a loan when compared to someone who can provide pay stubs as verification of income.

No doc and low doc loans are generally reserved for those with a good credit history. Although someone with questionable credit may still be able to qualify at a higher interest rate. The interest rate is highly dependent upon what the borrower is willing to reveal, their credit history and the size of the down payment. The more they are willing to reveal, the closer the interest rate will be to market rates. Higher interest rates are necessary on these types of loans because with little or no documentation, the lender is undertaking more risk.

No Doc Loans
This is exactly what it sounds like. A true no doc loan does not require a statement or verification of income, assets or even a job at all. Where typical loan applications ask you to state all bank accounts and balances, a no doc loan asks for none of this. This loan can be the perfect solution for the person who is unable or unwilling to provide the documentation necessary for a typical mortgage. These loans can usually be processed very quickly because of the lack of paperwork.

Low Doc Loans
In low doc loans, there is minimum documentation required. The type and amount of documentation can vary by lender. If you are self-employed, it can be providing the last two years of tax returns with the numbers blacked out. This is proof of employment but it still does not provide any verification of income. If you are not self-employed, as little as two pay stubs can be accepted as proof of income. Or the application could simply ask you to state your income. If you do not wish to state income but are willing to provide a statement of assets, this can also serve as documentation for this type of loan. Regardless of what is required, it is much less than a typical mortgage loan.

When deciding on a no doc or low doc loan, it is important to consider the additional costs that could be associated. In many cases, the interest rate and closing costs could be higher for these loans. This is necessary to offset the risk the lender is taking to lend money to someone who may or may not have the means to pay it back.

For many, these loan options are their only hope for financing. For those who are unable to document income, a traditional mortgage is not possible. The only way their dream of home ownership can be fulfilled is through a low doc or no doc loan. For these people, the benefits of home ownership usually far outweigh the additional costs associated with these loan types.

In the end, only you can decide if it is worth the additional cost not to provide any financial information for loan approval.

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