No Doc Home Equity Loan

By Bill Lyons | Published on August 8, 2023

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.

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, it’s 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.

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.

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.

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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.

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.

No doc business loans might be a better option even though the interest rates are typically higher. With a no doc business loan you don’t have to put a lien on your house, with a no doc home equity loan you do.

In addition, not all lenders offer these loans. You should do your research to find the right lender for you.

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. 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.