As their name would imply, low doc loans and no doc loans are mortgage loans that require less than full documentation of income, employment, and assets. The name is a bit of a misnomer, because the borrower still has to fill out an application (although they actually have to fill out less of the application), and at least a credit report is pulled on the borrower. The borrower will also have an appraisal done on the property that is being purchased.
Low and no doc loans cover a broad spectrum of required documentation. Following are the more popular low and no doc mortgage programs:
These type of loans represent increasing levels of risk to lenders. Because of this, there are several things that lenders do to help mitigate their risk, including:
Low doc/No doc loans are not for everyone. They serve a specific purpose. They make it easier for people whose income is difficult to verify to obtain a loan. They are also helpful to the very wealthy for whom providing the documentation would be viewed as either burdensome or intrusive.