Pros and Cons of Home Loans Without Documentation

In today’s market, there are many borrowers who do not fit the traditional mold, especially in terms of their employment, i.e. commission salespeople, freelancers, investors, etc. Understanding this fact, the mortgage industry has adapted by creating programs known as undocumented loans in which borrowers qualify based on their credit history without the need to document income and assets. Here are some pros and cons to think about if you fall into this category:

Pro

1. Simple subscription

If this is the only loan you qualify for, there is at least some good news. Because you are not testing anything, there is not much to do. Your lender will review your credit history to make sure you qualify. The insurer will then take a close look at the appraisal of the residential home and your credit profile. If those two things check, you’re usually good to go.

Cons

1. Higher interest rates

Since you are not proving your ability to repay the loan, you can expect to pay much higher interest rates than a typical borrower. Whenever you present a high risk to your lender, you will have to pay more.

2. Larger Down Payment / Less Access to Equity

The more you borrow against your home’s equity, the more risk you are at your lender. When buying a home under this program, you will need a hefty down payment, and by refinancing you will have less access to your equity.

Although there seem to be more downsides than positives to loans like this, they are still your best option if you can’t prove your income and assets. Consider the alternatives and take one if you really need it. Then start planning how you can refinance in a few years under better circumstances.