Self-Employed Option

• In most cases, self-employed and some commission-only borrowers deduct a majority of their business expenses from their tax returns. Due to this method, many times the self-employed or commissioned borrower does not have high enough net income on his tax returns to qualify for a traditional mortgage. The no-documentation mortgage allows this type of borrower an option to procure a mortgage. Additionally, some borrowers prefer this type of mortgage option to keep a general sense of privacy with regard to their financial matters.
  
  

Requirements

• A no-documentation mortgage typically requires a high credit score, above 720, and a high down payment of 5 to 30 percent, depending upon the lender. Additionally, there may be an equity requirement above the down payment of at least 25 percent, but, again, that depends upon the lender. Essentially, with these types of requirements, a borrower has to have a strong financial history and down payment to be able to procure this type of mortgage.
  
  

Types

• A no-documentation mortgage can be a fixed or adjustable rate product. The term of the mortgage can range from 10 to 50 years. If the mortgage is adjustable, the initial fixed rate period can be from 1 to 10 years, with adjustments every 6 months to a year. The payment plan on a no-documentation mortgage can be interest only or principle plus interest, if so desired by the borrower.
  
  

Considerations

• As of mid-2009, many no-documentation mortgages were pulled from the market due to the mortgage crisis. This means that many self-employed and commission only borrowers are having to look to either nontraditional mortgage products or show more income on their tax returns in order to qualify for a traditional mortgage.
  
  

Misconceptions

• While a no-documentation mortgage is similar in structure to a conventional mortgage, it does cause the borrower to pay higher interest rates than conventional options. Lenders typically charge higher interest rates to borrowers who are at a higher risk of default than others. A borrower who procures a no-documentation mortgage is a higher risk due to the lack of verification of income and financial resources.