No Doc Loans: too easy to get

Qualifying a borrower correctly is difficult to do and requires the experience of understanding underwriting guidelines, knowing the questions to ask of the borrower, and the ability to read and comprehend income documentation.

I replied today to a question over at the Housing Forum on Craigslist.

The person inquired about No Doc loans. These are loans where the bank does not verify your income or your assets, only your credit score and the appraisal for the house. Rates are considerably higher for these loans, anywhere from 1% to 2% higher than market rates for loans where we verify your income and your assets.

Here’s my reply:

    “No Doc” loans and other No-Income-Verification type loans determine the approval using the credit score.

    If your question is about the loan amount, then, yes, No Docs are available for that loan amount.

    But, as life888 points out you might qualify for a Full Income verification loan (Full Doc). With today’s rates so low, assuming good credit (at least 620) and low monthly debt, income needed to qualify for 100% loan of $280,000 (assuming taxes and insurance of $250 a month) is less than $85,000 annually.

    Remember that rates on NIV loans are at least 1% higher than market. Before you start talking “No Doc,” your loan officer should exhaust all possibilities to prequalify you correctly.

    I had lunch with a real estate attorney yesterday. We agreed that in the current market mortgage “professionals” take the easy way out on qualifying all too often. They see a good credit score and they stop there. Next thing, the borrower is signing docs for a NIV loan with a higher rate than they could have gotten if they’d been properly qualified.

    Let me tell you, qualifying a borrower correctly is difficult to do and requires the experience of understanding underwriting guidelines, knowing the questions to ask of the borrower, and the ability to read and comprehend income documentation. For too many mortgage people this is just too damned much work for them to be bothered doing, so they take the easy way out and go “No Income Verification.”

    Link to the discussion: http://forums.newyork.craigslist.org/?ID=34883185

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