No-doc loans got a bad reputation when the housing crisis occurred. Some borrowers who used the loans misstated and inflated their income. The loans thus became labeled, “liar loans”. But experts say these types and other alternative loans may soon be making a comeback.
For folks unable to fully document income and looking to purchase or re-finance soon, it’s important that they go above and beyond to document and prove their credit-worthiness. They should provide contracts, bill payment history, and any tax information they have. The key is to be creative. Be active in their attempt to convince the lender that they are a low-risk borrower, in spite of their inability to fully document their income.
Some say the overcorrection to the lending industry has missed the real issue. According to one source the elimination of a particular type of loan does not solve the problem. Various types of mortgages are needed to meet the needs of diverse borrowers. The real disaster occurred not because of one type of loan but instead because of a lack of accountability–the lender making the loan wasn’t necessarily concerned if the loan defaulted because these risky mortgages were pushed off lenders’ books and packaged up and sold to third parties.