4 Mistakes Borrowers Make when Applying for a No Doc Home Loan

Applying for no doc home loans is popular among certain groups of borrowers. Self-employed individuals tend to love these loans because they have a hard time proving their incomes. With a no doc home loan, the bank will take your word as to how much money you make. They will not verify anything, which can be beneficial to you. However, a no doc home loan is not without problems. Here are a few mistakes that borrowers make when applying for a no doc home loan.

1. Not Shopping Around

When you start looking for a no doc home loan, you might be tempted to just go with the first one that you come across. While you might get lucky and find the best one for you, you should never limit yourself to just one option. Go out and look around a little bit and make sure that you are getting the best deal.

2. Overextending Yourself

When you apply for a no doc home loan, you are basically in charge of how big of a house you can get. With a normal loan, the bank verifies your income and uses that to come up with a debt to income ratio. This helps them determine exactly how much money that you can borrow. When you get a no doc home loan, they are not going to be able to use any of those ratios. This means that whatever you put on the form will be the determining factor in how big of a house that you can get. This leads many people to embellish their incomes and get a bigger house than they can really afford. Having a large payment than you can afford can really overextend your monthly budget and make your life a lot more difficult than it should be. 

3. Committing Fraud

This mistake coincides with the last mistake mentioned, but it brings up another issue. Some studies have shown that as many as 70% of people that filled out no doc home loans did not portray their incomes accurately. Not only does this lead to getting more of a mortgage than you can afford, but it is also fraud. Anytime you lie on an official document like this, you are essentially breaking the law. 

4. Rushing Through

One of the major benefits of getting a no doc home loan is that it is faster than a traditional mortgage. When you get a regular mortgage, the bank is going to verify everything including your income level and your place of employment. With a no doc home loan, they are not going to look at any of that. They will not even look at your W-2's or pay stubs. This leads many people to rush through the process. When you rush through a mortgage, it can sometimes lead you to make mistakes that you do not want to make.