Real Estate News with Terri Taydus, AHWD, CNA, CRS, GRI

Low Doc Loans

November 18th, 2014 11:54 AM by Taydus Taydus, AHWD, CNE, CRS, GRI

It was only a matter of time and we are now starting to see advertisements for low document and stated income loans.

Unlike previous LOW DOC loans the new loans require larger down payments and higher credit scores. They are no longer referred to as LOW DOC loans but as AltQM financing. QM has to do with Qualified Mortgages that present less risk.  

You can do a low document loan with a credit score as low as low as 680 with 20% down payment but 2.375% will be added to the base rate of 5.625% for a final rate of 8% for a 5/1 ARM with a fee of at least one point origination.

If you have an excellent credit score over 740 you would still be penalized for only putting down 20% and the rate would be 6.75% for the same 5/1 ARM referenced above.  

As you can see these new loans are nothing like the LOW DOC loans of the past where borrowers could have bad credit, no income and no down payment and still get a rate that was very close to Market rate.

With the new loans that have reasonable terms you have to establish income but simply not verify through conventional means. You can use deposits into a personal checking account to determine income and you can use rental income to help you qualify.  

At the onset you need to be aware that the LOW DOC products that are available today are different from what was available in the past. You need to investigate your options before beginning the search and not simply assume that just because you have 20% down and great credit you can do the LOW DOC and get Market rate.

The other side of this discussion is understanding that a 7% interest rate is not the worst thing in the world as it provides you with the opportunity to buy a house and take advantage of this wonderful housing Market that we have in this area.  

For example, on a $500,000 home with a 20% down payment the difference in payment would be $656 or approximately 30% more.  

At first you may feel a bit outraged at the rate, but when you realize that you can either pay an additional $7,872 for the LOW DOC mortgage or declare the income necessary to get approved and pay an additional $21,600 in income tax, depending on your financial situation the rate may not look that bad after all.  

The above example is an actual client experience that I had. At first they were appalled by the rate but when they put it in context it is not that bad of a compromise.

This particular product is designed for primarily residences, rental properties, Foreign Nationals, and second home purchases.  

There are other products available that are much more aggressive with whom they will lend to but the rates can easily approach 8% or higher.

In summary the key is to understand that LOW DOC is not what we knew as LOW DOC in the past and before considering a LOW DOC option you  should speak with a lender and understand how the products are structured before wasting your time looking at properties with the intention of securing a LOW DOC loan.  

Information provided by Joe Taydus of Mutual Security Mortgage in Boulder CO.  Questions about this LOW DOC option?  Please contact Joe directly at (303) 443-5575 or email him at

Posted in:Home Financing and tagged:
Posted by Taydus Taydus, AHWD, CNE, CRS, GRI on November 18th, 2014 11:54 AM


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