No Doc Home Equity Loans: A Guide to No Doc HELOCs & HELOANs

By Bill Lyons | Updated on October 7, 2024

A home equity loan can help you tap into your home’s equity to consolidate debt and free up your cash flow. Unfortunately, not everyone has a regular 9-5 job with documentation like W-2s, pay stubs, and tax returns that allow them to easily prove their ability to repay a loan.

While traditional loans require borrowers to approve their ability to repay with stringent underwriting requirements, there are still options for individuals with non-traditional jobs or sources of income.

A no doc home equity loan might be right for you if you want to tap into your home’s equity but can’t provide proof of income using traditional methods. Instead, these loans allow you to qualify using alternative verification methods like bank statements.

Keep reading to learn more about no doc home equity loans — what they are, how they work, and what your options are.

What Is a No Doc Home Equity Loan?

A no doc home equity loan is similar to a no-income verification mortgage in which borrowers can qualify using alternative income verification documentation. While there is no true “no doc” home loan because lenders must do their due diligence to ensure a borrower’s ability to repay the loan, these non-QM mortgages allow borrowers to qualify for a home equity loan without pay stubs, W-2s, or tax returns.

There are essentially two ways to tap into your home’s equity: a no doc home equity loan and a no doc home equity line of credit (HELOC). A no doc HELOC follows similar principles to a no doc home equity loan, but instead of providing a lump sum, it offers a revolving line of credit. With a no doc HELOC, borrowers can access funds as needed during the draw period.

Instead of traditional income verification methods, the lender can use bank statements or asset verification to ensure borrowers can repay their loans. With no document home equity loans, you can borrow against the equity built up in your home without providing a significant amount of income documentation.

Like other types of home equity loans, you’ll be responsible for paying an additional mortgage; a home equity loan doesn’t replace your mortgage with a new one like a cash-out refinance. Instead, you’ll repay two loans — your original mortgage and home equity loan.

Types of No Doc Home Equity Loans

A no doc home equity mortgage loan doesn’t mean you can get a home equity loan without providing any documentation. Instead, this self-employed mortgage is more of a low-doc loan because it requires fewer documents for the lender to verify income. Regardless of the type of no doc home equity loan you get, you’ll still be required to prove your ability to repay.

Your no document home equity loan options include the following:

Bank Statement Loans

Also known as stated-income loans, bank statement loans allow you to qualify for a no doc home equity mortgage using bank statements. To verify your income with bank statement loans, lenders ask for 12 or 24 months’ worth of business or personal bank statements and look at the amount in deposits to determine your income.

If you have seasonal income or income that fluctuates, the lender will add all your monthly deposits and divide that number by the number of bank statements to give them an average monthly income. That number is then used to calculate whether you can afford to repay the loan based on various other factors like credit score, debt-to-income (DTI) ratio, and interest rate.

Find out how much you can qualify for with our bank statement loan calculator.

DSCR Loans

Debt service coverage ratio (DSCR) loans are for real estate investors only; they can’t be used to purchase a primary residence. Unlike residential mortgage loans, these investment property loans allow you to qualify for a home equity loan based on rental property income or cash flow.

Instead of verifying your income, lenders determine a borrower’s ability to repay this type of loan by comparing their rental income to their annual mortgage debt. Calculating the DSCR gives the lender a number that tells them whether the property generates enough income to repay the loan.

The higher the DSCR, the higher the investment’s cash flow, meaning there’s enough cushion to pay for regular operating expenses and the mortgage. A DSCR of 1 means the borrower makes just enough rental income to repay the loan, and a low DSCR loan means a borrower may struggle to repay their loan because their rental income doesn’t cover the full mortgage payment.

Interest-Only Mortgages

Interest-only mortgages are another non-QM mortgage type with more flexible lending criteria. However, instead of the emphasis being on alternative methods for verifying income, these mortgages offer a more affordable way to purchase a home.

With an interest-only mortgage, you only pay the interest for the first portion of the loan, allowing you to keep your initial monthly mortgage payments fairly low. Once the first period expires, payments are recalculated to include the principal amount.

With less stringent lending requirements and the ability to save on the first portion of the loan, these loans are another no doc home equity loan, but it comes with the ability to save more during the first few years of homeownership.

Alternatives to No Doc Home Equity Loans

While no documentation home equity loans can be appealing for their simplicity, they may come with higher interest rates and stricter terms. Fortunately, there are several alternative loan options that may better suit your needs while still offering flexibility in documentation requirements. Let’s explore some of these alternatives:

Asset-Based Loans

Asset-based loans convert your assets into income to determine your ability to repay the loan. These mortgage loans can be a good option if you have significant assets like bank accounts, investments, and even retirement accounts (in some cases) but irregular or hard-to-document income. The lender evaluates the value of your liquid assets to determine your borrowing capacity. While documentation of assets is required, income verification is less stringent.

Reverse Mortgages

A reverse mortgage allows borrowers to access their home equity without the need for monthly payments. This type of loan allows you to borrow against your home’s equity, receiving funds as monthly payments, a lump sum, or a line of credit.

Reverse mortgages typically have less stringent income requirements, focusing instead on factors like your age (must be at least 62 years old), home value, and existing mortgage balance.

VA Loans

If you’re a veteran, active-duty service member, or eligible surviving spouse, VA loans may offer attractive benefits. VA cash out refinance loans offer a way to tap into your home equity with potentially more favorable terms than traditional no doc home equity loans. This type of loan allows you to refinance your existing mortgage and borrow more than you currently owe, receiving the difference in cash.

VA cash-out refinance loans often feature competitive interest rates and may have more lenient credit requirements compared to conventional loans. While some documentation is required, the process is typically more streamlined because you already have a VA loan.

Private Money Loans

Also known as hard money loans, these loans are typically offered by individual investors or private lending companies. Hard money loans are primarily based on the value of the property being used as collateral rather than your income or credit score. While they typically come with higher interest rates, private money loans can be easier to qualify for and may offer more flexible terms than traditional mortgage loans.

What Are the Requirements for No Doc Home Equity Loans?

The requirements for no doc home equity loans vary by lender. In general, you’ll need to prove your ability to repay the loan. With no doc home equity loans, you’ll have more flexible options to prove your income or ability to repay the loan using alternative documentation.

In general, the requirements for a no doc home equity loan are:

• Equity: Equity is one of the most essential requirements for a no doc home equity mortgage. You must have enough home equity to qualify for these loans. Typically, lenders require a minimum amount of equity before considering a loan application. You can determine how much equity you have in a home by subtracting your mortgage balance from the market value of your home.
• Credit score: Lenders require a good or better credit score for no doc home equity loans because they’re considered higher-risk investments. If you have bad credit, you may not qualify for any type of home loan, but there are potential options. You can contact a lender to discuss your unique situation to learn more about your options.
• Property assessment: To determine your home’s market value, they’ll usually order a third-party appraisal. This can help them determine how much equity you have in the home so they can calculate your loan amount.
• Ability to repay: You don’t need a traditional source of income with a no doc home equity loan. However, you do need to prove your ability to repay, either by using rental income or alternative income documentation.

Tips to Help You Get Approved for a No Document Home Equity Loan

It’s important to keep in mind that there’s no such thing as a 100% no doc home equity loan. The lender must always verify that you can afford to repay the loan. However, that doesn’t mean that getting these loans is difficult. Here are some tips to help you get approved for a no doc home equity loan:

• Work on strengthening your credit score: Make sure to pay your bills on time and reduce or eliminate any outstanding debts before applying for the loan.
• Be prepared to explain discrepancies on bank statements: Have documentation ready for any large deposits or withdrawals. You should be able to clarify significant fluctuations in your account balance.
• Compare multiple lenders: Look beyond interest rates to evaluate each lender’s experience with no doc loans. Read reviews and testimonials from past customers and consider the lender’s reputation and track record in the industry.
• Include alternative sources of income in your application: Document income from side hustles or freelance work. Include child support or alimony payments if applicable. The more income you document, the better your chances of approval.

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Benefits of No Doc Home Equity Mortgages

The most significant benefit of a no doc home equity loan is that all types of borrowers can qualify using alternative income verification methods. Other advantages of these types of home equity loans include the following:

• Streamlined application process: No doc home equity loans have less documentation, allowing lenders to complete your application process faster.
• Flexibility: These loans allow for better flexibility for individuals with non-traditional sources of income.
• Potential for higher loan amounts: While your loan amount depends on factors like your income, DTI ratio, credit score, and interest rate, non-QM home equity mortgage loans may allow borrowers to qualify for higher loan amounts. This is especially true for investors using a DSCR loan because they can qualify based on the property’s rental income.
• Better interest rates: In most cases, no doc home equity homes have better interest rates than no doc business loans or credit cards. No doc business loans like MCA loans have very high interest rates.

Are There Any Potential Cons of No Doc Home Equity Mortgages?

While no doc home equity loans come with advantages for different types of borrowers, they’re not the best solution for everyone. Every borrower is unique, so it’s important to consider these loans’ potential drawbacks:

• Higher interest rates:  No doc home equity loans may have higher interest rates because they’re considered higher-risk investments for lenders. As a result, you may end up paying more in interest with this type of loan than a full documentation home equity mortgage or a first mortgage.
• Limited availability: Not all lenders offer no or low doc home equity loans. You should do your research to find the right lender for you.
• Puts your home at risk: No doc home equity loans use a borrower’s house to secure the loan, so there is a potential for foreclosure if you default on the loan.

Apply for a No Doc Home Equity Loan Today

No doc home equity loans allow you to free up cash flow by tapping into your home’s equity. Unlike traditional home equity loans, these loans come with more flexible lending requirements and the opportunity for some borrowers who may not qualify for another type of loan to use their built-up equity. Use this debt consolidation calculator to see how much you can save with a no doc HELOAN.

Griffin Funding is a premier non-QM lender that can help determine if a no doc home equity loan is right for you. If a no doc home equity loan is the right choice for you, we will work with you throughout the process to ensure you’re 100% satisfied. Take it from Jayne F. in Las Vegas, NV:

“Worked with Lauren on a no doc second mortgage. We’re self-employed, and were skeptical about our options. It was so easy! We closed in 3 weeks and that included getting an inspection. Lauren, Kayla, and Ashley were a joy to work with.” via Yelp

Get approved for a loan today, or contact us at 855-698-1098 to learn more about your options.

Bill Lyons

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.