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No-Doc Loans – Buying A House Without A Job

What are no-doc loans? “No doc” is short for no documentation. These are loans for which the bank or other mortgage lender doesn’t require any documentation of income or employment. It doesn’t quite mean no documents at all, and in fact, it can mean different things to different lenders.

When we got the loan on the house we are in now, for example, we didn’t provide evidence of income. We didn’t have jobs at the time. In fact, the lender made it clear that we shouldn’t even mention what our reported income was. We did have a new business that was becoming very profitable in recent months. However, the previous year’s tax return would have shown an income too low to qualify us for a loan.

We qualified based on credit scores alone. Fortunately, both my wife and I have always paid everything on time and had good scores. We did have to provide information on when we started our business, and the usual appraisal of the home was required. So “no doc” doesn’t really mean no documents, but rather limited documentation.

In fact, many such loans are referred to as “no income verification” loans. You might still have to verify that you have a job or a business, but without any evidence of how much income you make from it. Some loans may be referred to as “partial documentation loans,” or “low documentation loans,” and require some proof of income, but still be based primarily on credit score.

Why No-Doc Loans?

At a time when the typical 30-year mortgage loan was charging 6% interest, our loan cost us 7.25%. That is typical of no-doc loans. They will always have a higher interest rate, because they are considered a higher risk by lenders. I know of at least one person who obtained a no-doc loan at 11% annual interest while normal rates were a little below 6%. That brings up the question of why you might want such a loan.

The answer is a simple one – because you have no choice. In our own case we had money in the bank and a growing business, but the business had just started to really take off, so the previous year wasn’t so profitable. We couldn’t show income sufficient for any loan, but we had good credit scores. If we wanted to buy a house, we had to rely on those.

If you have a great job, but were unemployed the year before, you might face a similar situation. Also, getting a better job may seem great to you, but to a lender, if the job is too new and in another field than your previous job, you are a risk. You may have to rely on your credit score.

As you can imagine, when you get a no-doc loan, credit score matters. Our higher score meant 7.25%, which seemed high until compared with that 11% loan I saw. Keep in mind what is likely to happen in the future when looking at these loans. For example, if we were within a month or two of filing the next years tax return, we could have waited to buy a house and obtained a regular mortgage loan at 6%.

Of course, you can also look at no-doc loans as a temporary solution. As soon as you have documented income from a business, or enough time on the job, or have otherwise corrected whatever the problem is, you can refinance. This certainly would be my goal if I had an 11% mortgage loan when 6% was available.

Tags: buying a house, Loan, no doc loan, no-doc

Win By Understanding The Real Estate Market Today

Worried about the future of the current real estate market? This is actually the best time to make money investing when you understand what is going on in the real estate markets right now.

Real estate is cyclical and always has been. There was a large national article published that stated Las Vegas real estate had completely capped out and there was no place for it to go but down. Ironically, that article was published nearly half a century ago! Has real estate gone up in value in Las Vegas in the last 50 years? Absolutely and more than just a little! Now does that mean real estate is going to keep going up like it has the last few years? Don’t plan on it, however I’ll explain the benefit of this type of media coverage and how it is invaluable.

2. The fear it creates scares a lot of people keeping them from investing thereby, creating more opportunity for you.
3. It eliminates aggressive scam investments (as we saw rampant with builders in Florida and Las Vegas the last few years).
4. This creates more flexible sellers because peple begin to question the value of their property.

This is something to think about: I don’t know any successful real estate investors who are afraid of flat or falling house prices? Quite to the contrary, knowledgeable investors understand when markets are flat or down it just weeds out beginning investors, makes people panic and means more opportunity.

What’s important to understand is just as real estate is cyclical, so are the amount of buyers and sellers in a given market.

It’s more than just buying property hoping it will increase in value tommorrow. That’s not investing, that’s speculating! Your completely dependent on future growth that is entirely out of your control. In the short term, that kind of conventional thinking will not work in a declining or a flat real estate market. Like any business, you need to make well calculated decisions. In real estate, that includes making creative, risk free offers and setting up your exits appropriately for the specific investing circumstances.

There are also better creative real estate strategies for down and soft markets like wholesaling, flipping/assignments, lease options, foreclosures, short sales, and “subject to” investing. But even when doing rehabs or fixer uppers (which are not usually recommended in down markets) there are still good ways to make a good profit with the right system and proper planning, such as factoring in depreciation and extended selling possibilities.

This is why faster, lower risk, more creative real estate investing strategies like wholesaling houses are better to use during market declines. The point is market conditions should not determine whether or not you make money; it’s how you approach it and what is appropriate for the circumstances. Whether you are successful or not will never have to depend on real estate market conditions if you structure risk free deals and make calculated decisions!

Tags: buying a house, buying real estate, investing in real estate, make money buying houses, making money in real estate, real estate investing