As with the no income verification loan, the No Doc program is ideal for self-employed applicants and for borrowers who have unstable income, such as commissioned employees, recently employed borrowers and applicants who receive a large amount of cash (undocumented) income.
However, the No Doc program is also used by salaried borrowers who cannot qualify for a loan, based on their documented income. It is also available to borrowers with damaged credit, at a price.
The additional advantage of the No Doc program—over the NIV loan—is the no asset verification (NAV) element. With a No Doc program, borrowers with “mattress money” or other undocumented cash can still use those funds to qualify for the loan.
The No Doc program is most commonly used by self-employed borrowers. Because of the nature of entrepreneurship, most self-employed people tend to earn very little income during the first years of their business. Yet even more established and profitable entrepreneurs still report little income on their personal tax returns, as they apply loopholes in corporation tax laws.
However, such low reported incomes—although they save on tax dollars and are legal—haunt that borrower when it comes time to obtain a mortgage. With a higher down payment and slightly higher interest rate, that borrower can still obtain mortgage financing.
The No Doc program is also often used by borrowers with undocumented income, which often become cash (undocumented) assets. Many jobs, such as servers, valets, door attendants, bartenders and massage therapists, are still predominantly cash-based. There is oftenactual amount of gratuities earned in such jobs.
Putting aside the morality of under-reporting income, the No Doc program allows such borrowers to qualify for a larger mortgage loan than their documented income and assets would normally allow.