Real estate is the most important purchase most Americans will make in their lives. Whether you are purchasing a home for you and your family, an investment property you plan to rent, or a house to flip, the day you close is a big one. Most home buyers use a conventional mortgage to purchase property. This process is expensive, invasive, and time-consuming; furthermore, if your financial situation is in any way non-traditional, you may not qualify. An easier route to securing the funding you need is to utilize a no doc loan.
What Is A No Doc Loan?
As you have probably gleaned, a no doc loan is a loan you can apply for without submitting any documentation. At a bank or a credit union, you have to submit a credit report, your W-2s, your tax returns, and any number of other documents that take time to procure. With a no doc loan, you simply apply and sign the paperwork. The lender may run your credit, but nothing beyond that.
These loans are often confused with low doc loans and hard money loans. As you can imagine, low doc loans are loans you can apply for with minimal documentation. The idea, to provide the borrower with privacy and reasonable wait times, is similar to the purpose of loans with the “no doc” label, but they are not as hassle-free, nor or they quite as quickly approved and funded as their counterparts.
Who May Need a No Doc Loan?
Many homebuyers prefer no doc loans simply because they are expedient and require less paperwork detailing your personal finances on a mortgage application. Other borrowers find it difficult to qualify for conventional mortgages or other loans when their finances are less easily quantified and approved.
1. Good Credit, Non-Traditional Income
Many Americans have an income that is not easily reflected on W-2 or a tax return. Potential borrowers in this category are often freelancers, contractors, or small business owners who are punished for their own sense of independence by large banks. These lenders are reticent to lend to independent-minded workers because it is difficult to guarantee the durability of that income. Loan originators like As-Is Loans can easily navigate this problem, especially if you have a solid credit history.
2. Poor Credit
If you have poor credit and you need a mortgage or any other type of loan, most banks will laugh you out the door; others may offer you a loan with horrible terms. Homeowners with poor credit can absolutely find loans that put them in homes or help them secure money based on pre-existing real estate assets. You simply need to work with a lender that has a wide network of financing partners that will work with you to find the right loan.
3. Investment Properties
Ambitious lenders may use loans that require minimal documentation to acquire a piece of property that stands to benefit them financially, usually in the short- to intermediate-term. The two most common instances of this are rental properties and dilapidated homes to be flipped for a profit. Both of these purchases can yield an excellent return.
Types of Loans
Most borrowers who look for a loan they can get without providing documentation are looking either to purchase real estate or use the equity in their pre-existing properties to invest in another venture. These motivations can be accommodated using either hard money loans or no doc mortgages.
Hard Money Loans
Hard money loans are issued based on the value of the other assets you already hold. This means one of your current properties will be tied to the value of a hard money loan. These types of loans are most often issued for a relatively brief period between one and three years. If you work with a loan servicer with numerous financing options, you may find greater flexibility in reference to the terms of the loan.
If you plan to purchase a rental property and you can reasonably expect to profit off in the following years, a hard money loan can be a great way to secure the financing you need. This is because hard money lenders are far more willing to work with individual borrowers to find a solution than large banks, which prioritize a more standard view of the ideal borrower.
Hard money loans are also a great option if you want to flip a house. Most hard money lenders have a standard 12-month hard money loan you could use to purchase a property, make it great, sell it at a profit, and pay off the loan. This option requires you to have the skills and time to fix up a house in poor condition, but, if you can do it, you can make a lot of money using flexible hard money lenders.
No Doc Mortgages
No doc mortgages are the primary alternative to waiting for banks to process a bevy of paperwork before they elect to fund your loan (or not.) Lenders may still check your credit, require you to sign off on your ability to pay, or purchase mortgage insurance. These obligations pale in comparison to what a bank or credit union would require, and the wait times are a fraction of the period.
Most no doc mortgages are intended for borrowers who hope to make the home they purchase their primary residence; however, in some instances, you may be able to use a no doc mortgage to purchase an investment property. This is most likely if you plan to live in a home and rent out another portion of the home as an owner-operator. For example, if you planned to purchase a duplex, live in one half of the home, and rent the other, you could likely use a no doc mortgage to finance that purchase. As we mentioned, a loan originator like As-Is Loans optimizes flexibility.
Securing Your Loan
Before you contact a loan originator, it will be helpful to assess your finances and your goals. Keep in mind that no doc mortgages and hard money loans often require a slightly larger down payment than conventional mortgages. This is a small price to pay for privacy and expediency, but it is important to remember as you assess the property you want to buy.
If you want to take out a hard money loan, you will likely have to substantiate the fact that the loan will be used for business purposes, commercial property, investment, or be held by a company or trust. In plain English, this means you can use them to buy or fix up a rental or investment property, but you will have to sign to confirm that you will use the loan for one of the purposes listed above.
Some loan originators will be picky about the property you choose to purchase, especially if the property is a rental. Loan servicers are hyper-attuned to the viability of a property based on the quality of the property, the area, and other factors potential tenants may take into account, such as the quality of the local schools. The more adept loan originators, those that work with many financiers, may have strategies to circumnavigate these complexities.
We have probably made our perspective on who you should work with to find loans and why we believe that at this juncture, but, in case we haven’t, we will explain our perspective and our reasoning succinctly. Your three primary options are to work with a bank, a loan servicer, or a loan originator. As we mentioned, banks are a hassle because they require undue documentation, they take up to two months to approve a loan, and their terms are set in stone. If you need flexibility, this is a bad option.
A loan servicer is any company that finances loans and collects the money plus interest. When you work with an individual loan servicer, you are beholden to their products and the terms attached to those products. This provides greater flexibility than a bank, but it still ties you to one institution which makes a loan servicer a less attractive option than loan originators.
Loan originators are companies that work with individual borrowers and loan servicers to find the best possible match for the borrower and the lender. This means when you bring your specifications to a loan originator, that company can use their expertise to contact the most viable lenders and then hand-pick the best deal. This, more so than any other option, provides you with the flexibility you need to purchase a property when it works for you.
Whether you need financing to purchase a new home, invest in a rental property, or put your expertise to work on a broken-down house with potential, no doc mortgages and hard money loans can help you achieve your financial goals. These types of loans avoid the unnecessary bureaucracy common in traditional banks and credit unions. If you have sub-par credit, non-traditional income, or deal in investment properties of any variety, you need to contact As-In Loans. They have the network of financiers to get you whatever loan fits your needs.