Limited documentation can mean a wide variety of things when it comes to applying for a mortgage. Today, if you are applying with one of the smaller lenders that tend to keep some of their mortgages on their books, you could be talking about a loan that is very similar to the stated income or stated asset loans that used to be the norm. Yes, these loans still exist; you just have to know how to look for them. The right lender can set you up with a mortgage without fully documenting your income and/or assets, but you have to know where to look and what you need to provide in order to get the loan that you need.
Smaller Lenders Prevail
The Dodd-Frank Act has put a damper on a lot of the loans that used to be around. These loans were put under the “subprime” umbrella and quickly saw a decline because of the number of defaults that came about earlier on. Today, however, those loans are making a comeback with the smaller lenders. They are not calling the loans subprime; however, they are calling them alternative documentation loans or something along those lines. These are the loans you need to look for – you might not find “stated income” or “stated asset” as the name of a program, but chances are that program still exists, just under a different name. What you need to let these smaller lenders know is that your income is not typical and that you need a way to verify it without paystubs or W-2s – that will get the lender taking about their alternative documentation loans, if they have them. If they don’t, you can shop with another lender down the street or on the internet.
Providing your Information
So what type of information are these small lenders looking for when they provided these stated income and/or stated asset loans? They want other verification of your income and/or assets. They are not taking your word for it like they used to with traditional stated loans; instead, they are altering the way they document your information. This is why these loans cannot go the standard route and meet the Qualified Mortgage guidelines. The smaller lenders might charge a higher percentage of points or even a higher interest rate in order to give borrowers a loan without standard qualification. This does not mean the borrowers cannot afford the loan; it simply means the bank has to go around the standard QM rules and keep the loan on their books.
If you are stating your income, for example, lenders will need you to provide bank statements to show receipt of income on a regular basis. Does it need to be the same amount of income week after week? No. That is the beauty of the program – if you are self-employed or work on commission, you are not going to have steady paychecks or deposits in your bank account. They take that into consideration and look at a larger time period, such as the last 12 months. They look for consistent deposits and take an average of those deposits to come up with your income for the purposes of the loan. If you need to state your assets for a particular reason, you will have to state them within the realm of the industry you work in. This means, do not stretch the truth and make it very unlikely that you could have that amount of reserves on hand given the standard pay scale for people in your industry in your area. Lenders are going to know what is reasonable and what is not and will approve and deny loans accordingly.
Overall, limited documentation can help you get a mortgage if you have an odd situation, such as inconsistent income or you are self-employed. It gives you the chance to verify yourself in ways that standard documentation does not allow. Will you pay the price as a result of going the “other route”? Yes, you probably will, but the fees and/or interest rates are not out of the ordinary. Standard borrowers that are looking to purchase a house in the first place can typically afford them. The beauty of it is you are not stuck with one lender – you can shop around with various lenders to see what each one has to offer before settling on a program to help you purchase a home.