You need to provide a lot ofdocumentationto obtain amortgage. It’s not necessarily a bad thing—lenders simply want a clear financial picture of your borrowing power.
However, some home buyers may yearn for the days when mortgage lenders offered low-documentation loans to prospective buyers. So what happened?
Low-documentation loans, also known as low-doc loans, were popular before the housing crisis and the Great Recession. Many believe low-doc loans were a significant factor in the financial crisis.
Before the recession, lenders offered buyers loans without checking theirability to repay. In some cases, the only financial documentation a buyer had to provide was simply a number—his yearly income.
Due to a lack of oversight, many people lied about their income—or were persuaded by the lender to lie—in order to get mortgages (these loans were often called “liar loans”). Because these mortgages required minimal documentation, borrowers had to pay higher interest rates.
The lenders, who knew these mortgages were high-risk, off-loaded these loans by selling them to investors.
Some good use
Low-doc loans weren’t all bad—if they were used responsibly. People who didn’t earn a traditional income—the self-employed or those who received a financial windfall—used low-doc loans, because they may not have had pay stubs and income statements required by traditional mortgages. Customers who opted for financial privacy over better rates also favored low-doc loans.
But in early 2014 new lending rules made it impossible for home buyers to get these loans.
New loan rules
Thenew mortgage rules, enacted at the beginning of 2014, require lenders to verify buyers’ financial documentation, including for employment status, income and asset, debts, credit history and types of monthly mortgage payments. A buyer’s debt-to-income ratio also has to be verified.
As a result, the no-doc and low-doc loans available before the recession have been forced into near extinction.
Brent Dildine has over 20 years experience in the Boise area real estate market. He works with both buyers and sellers, specializing in residential re-sale properties, and new construction. His extensive knowledge of the Greater Boise area, as well as many professional relationships with lenders, builders, title companies, and developers makes Brent Dildine your best source for your real estate needs!
"I'm ready to go to work for you TODAY! Please call (208) 919-2424... ANYTIME!" Brent Dildine, Broker
Things Your Mortgage Lender Wishes You Knew ByJamie Wiebe
"Brent was great to work with, he really listened to what we wanted and he showed us houses tailored to our requests. He always made time for us and made us feel we were his top priority. He made the whole process simple and actually fun! We will definitely recommend Brent to all our friends and family! We couldn't be happier with our new home!"