Understanding the No Documentation Mortgage Loan
For most potential mortgage borrowers, the verification and documentation of the borrower's income is an important step. Most mortgage lenders will want to see full documentation of all the borrower's income, including wages, pensions, support payments and the like.
There are, however, many people who do not have traditional documentation of income, or whose income is uneven. This includes those who are self employed, those who may work a large number of hours one month and little the next, and those whose main income comes from investments and not income. Contractors, consultants and other business people often find themselves in such a situation. It is with these people in mind that the no documentation mortgage loan has been designed.
A no documentation mortgage loan is just what the name implies - it is a mortgage loan for which documentation of income is not required. The people who take advantage of these loans are able to get the money they need without revealing extensive information about the amounts and sources of their income.
The no documentation home mortgage loan is still a relatively small part of the mortgage market, but it is growing in popularity as more and more people start their own businesses and work at nontraditional careers like consulting and online businesses.
Even though the income verification and documentation rules on no documentation mortgage loans are less strict, the rules on the repayment of the mortgage loan itself is every bit as strict. As a matter of fact, most no documentation mortgage loans feature very strict terms for repayment of principal and interest, and they also tend to have high penalties for missed or late payments. It is important to read all the paperwork of the loan before signing on the dotted line.
It is also important to understand that these no documentation home mortgage loans often come with higher interest rates than those on comparable mortgage loans that provide documentation of income. Therefore, providing verification of income, even if your income is uneven or difficult to substantiate, may well save you some significant money.
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