Full Documentation, Stated Income - What Are They?
If you have already read our article: "Your Interest Rate and What Affects It," then you already know that the more documentation you provide, the lower your interest rate will drop. However, it may not be clear what exactly constitutes the different levels you can provide, so this article explains the types of documentation from which you can choose to follow.
Full Documentation
This is the highest level of documentation. At this level, you have to prove everything you claim. The lender will want to see pay stubs to prove your income, bank statements to prove your assets, W-2s or 1040s to show your income over the past two years. There are other conditions that may arise during the approval process that will require additional documentation regarding other aspects of your application, but the basics of full documentation is your income and assets.
Summary: Provide pay stubs, bank statements, W-2s/1040s; Employment, debts, rent will still be verified by lender; Will provide borrower with best interest rates
"Lite" Documentation
This is an unconventional method of providing the highest level of documentation. Some lenders have begun to allow this type of documentation due to the fact that there are an increasing number of self-employed borrowers who can prove their income but cannot provide pay stubs. Instead the borrower will prove their income through other means such as bank deposits. However, the borrower still needs to provide documentation for his or her existing assets as well as providing the last two years worth of 1040s.
Summary: Provide unconventional income documentation (bank deposits, etc.), bank statements, W-2s/1040s; Employment, debts, rent will still be verified by lender; Will generally provide borrowers with best interest rates
Stated Income / Verified Assets
This is one of the more popular levels of documentation, especially in recent times. This program was initially created to simplify the mortgage application process for self-employed borrowers, however this program has become more widely used among those who are wage-earners or salary-earners. At this level fo documentation, borrowers provide proof of assets but are not required to prove his or her income. Keep in mind this does not mean that you can state any income, it still has to make sense. It is illogical that a fast food chain's cashier will earn $200,000 a year and if these figures are used to apply for a loan, it is guaranteed that the borrower's application will be rejected.
Summary: Provide bank statements; Employment, debts, rent will still be verified by lender; Will generally have a marginally higher interest rate
Stated Income / Stated Assets - (aka NINA or No Income No Assets)
This level of documentation does not require the borrower to provide documentation for income or assets.
Summary: No documentation required; Employment, debts, rent will still be verified by lender; will generally have a slightly higher interest rate
No Ratio
This level of documentation requires the borrower to provide the same amount of paperwork as stated income / verified assets. The major difference being that in a "No Ratio" application, the application itself does not reflect any income at all; that area is left blank. This type of documentation does not consider the debt-to-income ratio of the borrower. This is beneficial to those with more debt than traditional mortgages allow, for those whose income is basically unverifiable, or for some unique situations. Generally, this level of documentation is only available to borrowers with a large amount of equity in the property when refinancing or borrowers putting large down payments.
Summary: Provide bank statements, no income is used at all; Employment, debts, rent will still be verified by lender; Will have higher interest rate
No Documentation
Also known as "No Doc" this level of documentation does not require anything from the borrower. This is the least amount of paperwork needed from the borrower. The only factor of the borrower the lender uses to determine the application's viability is the borrower's credit report and the property itself.
Summary: No documentation required; Employment, debts, rent will not be verified by lender; will have a much higher interest rate
As you can see, the more documentation you provide the lender, the lower your interest rate will be. However, this still depends on your own financial situation and your mortgage needs. If you cannot prove your income for one reason or another, then there is no way you will be able to go with full documentation, but there are other options. If you would like some feedback as to what your particular situation requires, contact us to give us your story and we will help bring you to the right direction.
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