You might be at a point in your life where you’re ready to buy something you’ve wanted for a long time. Maybe a new house. Money and finances are, of course, the most important thing for such a considerable investment. So many different kinds of loans can help you with that purchase.
The list of documents and other requirements can be a headache, even if you get the right loan. Still, you can find a lot of information about the loans that are right for you on the Internet. Here are the facts about Full Doc Loans that you need to know.
What is Full Doc Loan?
All income and assets are shown as proof of a full documentation loan. In the mortgage business, these loans are usually called “full doc loans” because they require a lot of proof of regular income. Some proofs contain information about the applicants’ jobs, assets, and income sources.
The most common mortgage is a full doc loan. It is also a typical loan used to pay for a home purchase. This type of home mortgage is for people who have worked for a long time and have a lot of savings. This is because they can show the lender more proof of their income.
It’s also less risky for the lender because they have proof that you’re a good borrower who can repay the loan monthly. Because of this, the full doc loan interest rates are lower than those on other home loans. This can actually save you a lot of money over the life of your loan.
Brokers can help determine the best full doc home loan if you are a traditionally employed borrower looking for a home loan. In the best case, they can assist you in getting a loan with a low-interest rate and good features. Here is how you can qualify for a full doc loan.
Requirements for Employed
As was already said, full doc loans require a lot of proof. Most of the time, proving income means showing several official documents that support the applicant’s income claim. Here is a list of the needed paperwork you will have to apply for a full doc loan.
The priority in availing of a full doc loan is determining how much you earn. Social Security, investments or bank account interest, and veteran’s benefits are some sources of income.
- W-2 form
- Recent pay stub
- Tax returns from the last two years
- Proof of Earnings (for self-employed):
- Profit and loss statements
- Tax returns for the current year and the two years before
- Any extra income
- Social Security
- Overtime bonus
- Veteran’s benefits
For a full documentation loan, the borrower will also have to give proof of any assets they already have. This will include information about all bank accounts, stocks, and other investments, as well as titles and deeds for things like land or cars. The lender may also ask for copies of the last two to three months of all financial accounts.
- Address of one’s bank branch
- Bank account numbers
- Checking and savings account statements from the last two to three months
- Savings bonds, stocks, or other investments and their approximate market values
- Copies of the titles to any paid-off cars
In a full documentation loan process, the current amount of debt will also be written down. There are all kinds of debts included. This will consist of all balances on credit cards, furniture, cars, and student loans. Also, the applicant will have to list any regular payments for child support that they are liable for making. If you want a full documentation loan, you need to tell the lender about all of your debts.
- Credit card bills from the last few billing cycles
- Other consumer debt:
- Car Loans
- Furniture Loans
- Student Loans
- Proof that the mortgage or rent has been paid
Information on Desired Purchase
Most of the time, the lender will want proof of the purchase. When applying for a full doc loan to help buy a home, you must show proof of the property’s current market value. Even though the full documentation loan is quite thorough, it usually comes with a competitive interest rate that can save the borrower considerable money over the loan term.
- Copy of the signed purchase agreement
- A canceled deposit check as proof of commitment to the purchase.
Requirements for Self-Employed
If the applicant is self-employed, 1099 forms from the previous year can be used. Self-employed applicants may need to provide a profit and loss statement and one more set of annual tax returns.
For a full documentation loan, you usually have to show copies of your federal and state tax returns for the previous two years, whether you have a job or are self-employed.
People often think that if you work for yourself, you can’t borrow from a bank or that you can only get a low-doc loan. Although it can be tougher to get a loan if you work for yourself, lending companies are not your only option.
Of course, if you cannot provide such documents, there are other options for you.
Full Doc Loan vs. Low Doc vs. Alternative Doc
The main difference between these three loans is the proof the lender needs to see that you make enough money to repay the loan.
With a low documentation mortgage, also called a low-doc or limited doc mortgage loan, you usually have to show less proof of your finances. These documents still need proof of your income, assets, and debts, but they aren’t as strict as those needed for a full-doc home loan. It is mainly used by people who work for themselves or own small businesses. It may have higher interest than a full doc loan.
A low-doc loan uses a process to confirm your income details in the form of a signed Borrower’s Income Declaration that states your usual income. Most of the time, these loans are not regulated and have a higher return than other home loans because they are riskier.
Usually, this means that:
- Home loan rates are higher, which means you pay more interest
- Higher fees, such as fees for risks, and
- Lenders may ask you to get more Lenders’ Mortgage Insurance.
On the other hand, alternative documentation loans are made for people who can’t show proof of income, like pay stubs. These people want to borrow money but have unique circumstances, like being self-employed or getting divorced. Lenders who offer Alt-doc loans work with different kinds of documents, like bank statements and business activity statements.
The applicant’s credit history is a big part of the decision. The borrower gives the lender the necessary paperwork, but the lender doesn’t have to spend much time confirming all of the information. Whether or not you can get an alt-doc loan varies depending on your lender. You can usually send your business bank statements from the last six months and your BAS returns from the last two quarters.
Fix and Flip Loan
In addition to the loans mentioned a while ago, the full doc includes the fix and flip loan. Full doc fix-and-flip loans are short-term loans that help investors buy and fix up properties to sell them for a profit. Fix-and-flip loans are only used to buy homes for investment purposes at auction or through foreclosure.
A buyer may try selling the property “as is” in the future, or they may choose to make improvements to the property prior to selling it to add value. Fix-and-flip loans help with this. Fix-and-flip loans are usually used to pay for the initial costs of renovating a property when the buyer plans to improve it and then sell it for a profit.
Many things go into a successful fix-and-flip. The buyer must understand the market, find properties at a reasonable price, put together and lead a team that can carry out improvement plans effectively, and gets money to pay for the project.
But sometimes, a borrower can’t get a loan from a bank or other traditional lender because it takes longer than expected or costs too much.
When you know the steps, buying a house is more fun. Loans are easy to get these days. You only have to know what works best for you. Additionally, it helps to know how much money you have and how the economy is doing.
You should choose a Full Documentation Loan if you have a steady job and income and can provide the many documents that are asked for. It’s better than Alternative Loans and Loans with Low or No Documentation. Of course, this doesn’t mean that alt loans and loans with low or no documentation are bad. You can choose if your situation doesn’t meet all the strict requirements.
Lastly, a fix and flip loan are for you if you are an investor who loves to buy, fix up, and sell homes. Even though it is harder to find a lender, you should still do a lot of research. Getting a loan shouldn’t be scary as long as you know how they differ and which ones are best for your situation.