The Downside of No Doc Home Equity Loans

If you own a house, and are looking to take out one of the no doc home equity loans, in order to avoid the issues and stress of giving the lender access to all your employment and income paperwork, then you should be aware of exactly what these types of loans will mean to you. While they may seem like a perfect way to easily apply for the cash you need to do improvements, or pay off other bills, there are some downsides to a no doc home equity loan, that affect not only you, but the lender, as well.

Lenders Risk Non-Payment by the Buyer

The mortgage provider who provides a no doc home equity loan, faces the real possibility that the reason the homeowner wants this type of loan, is that they are likely to default on it. The lender has to trust that whatever the person puts on their application as income, is really what their income actually is. If for some reason they are not telling the truth, then the mortgage provider is at the mercy of hoping the borrower can still continue to make their payments on time. If not, they have to go through the hassle of the courts to get their money, something no one wants to happen.

Higher than Average Interest Rates

If you get a no doc home equity loan, don’t be surprised if it has a much higher interest rate than a normal equity mortgage loan. The lender does this on purpose, to make up for the fact that they are taking a risk that the information supplied is not entirely factual. If you still want to avoid having to supply your financial information to the mortgage lender, then go ahead and apply, but be aware that you could be spending thousands of dollars in extra interest costs, just because you don’t want to share that paperwork.

Some People Lie

As stated before, the mortgage lender is subject to the person filling out the application telling the truth. If they don’t, the lender faces the possibility of foreclosing on the loan, as well as the possibility of taking the owners to court for fraud charges. Getting a loan by lying just isn’t worth the possibility of going to jail, so it is much better to tell the truth and hope for the best.

Legitimate Reasons

There are some real legitimate reasons no doc home equity loans can be a godsend, however. These could include things like the potential buyer is self employed, and doesn’t have normal W2s or regular income, they are retired and have different sources of income, and other reasonable issues. All you have to do is fill out the form, sign your name and wait to see if you are approved. This is simple, neat and easy, if you are doing it for legitimate and good reasons.

Overall Facts

There are possible issues for both the lender and the person asking for the no doc home equity loans. It can be a great deal for homeowners with good intentions and valid reasons for not wanting to provide financial paperwork, so they can speed up the loan process.