Tutorial on Selecting Documentation
18 April 2006, Revised November 18, 2008, Reviewed July 27, 2009
A lender’s "documentation requirements" stipulate a) the information about income, assets and employment that must be provided; b) whether and how this information will be used by the lender; and c) whether and how the information provided will be verified by the lender.
In normal markets, lenders usually offer multiple choices, from the most demanding called “full documentation”, to the least demanding called “no-docs”. The full range is shown in the table below. Because the risk to the lender rises as documentation requirements become less stringent, the price of the mortgage rises correspondingly.
In general, borrowers receive better pricing the more documentation they provide, though providing documentation can be a hassle. Some borrowers have such a strong aversion to the hassle that they are willing to pay the price to avoid it. That’s OK so long as the decision is yours and not the loan provider’s. Occasionally they steer a borrower into less demanding documentation in order to make less work for themselves. That you don’t permit.
As the financial crisis evolved in late 2007 and early 2008, the range of available documentation requirements gradually shrank. No docs were gone by December 2007, and by June, 2008, virtually all loans being offered were full doc. The more liberal requirements will be back, but nobody knows when.
A lender’s "documentation requirements" stipulate a) the information about income, assets and employment that must be provided; b) whether and how this information will be used by the lender; and c) whether and how the information provided will be verified by the lender.
In normal markets, lenders usually offer multiple choices, from the most demanding called “full documentation”, to the least demanding called “no-docs”. The full range is shown in the table below. Because the risk to the lender rises as documentation requirements become less stringent, the price of the mortgage rises correspondingly.
| Type of Documentation | Type of Borrower |
| Full | Borrower can document income for last 2
years as derived from one job or business, and such income is
sufficient to qualify. |
| Alternative | Same but the borrower is in a hurry.
Ask for this, it does not cost anymore. |
| Stated Income | Borrower has sufficient income to
qualify but cannot fully document it because, e.g., it is
business income, borrower changed job or was promoted, there are
two incomes but only one is being used to qualify, etc. |
| No Ratio | Borrower’s income does not meet lender
standards but borrower considers it adequate because he is
accustomed to allocating a large percent of income to housing,
has dependable family support, will shortly reduce expenses by
paying down other debt, etc. |
| Stated Income/Stated Assets | Borrower cannot fully document assets (as well as income), but expects to have enough from gifts,
business income, cash-out refi, etc |
| No Income/No Assets (NINA) | Borrower with a job or business either
does not have the income and assets to qualify, or does not wish
to disclose them. Borrower might have substantial
income-generating capacity, such as a physician moving to a new
state, or substantial home equity. |
| No Docs | Same as NINA but borrower cannot document a job or business. |
In general, borrowers receive better pricing the more documentation they provide, though providing documentation can be a hassle. Some borrowers have such a strong aversion to the hassle that they are willing to pay the price to avoid it. That’s OK so long as the decision is yours and not the loan provider’s. Occasionally they steer a borrower into less demanding documentation in order to make less work for themselves. That you don’t permit.
As the financial crisis evolved in late 2007 and early 2008, the range of available documentation requirements gradually shrank. No docs were gone by December 2007, and by June, 2008, virtually all loans being offered were full doc. The more liberal requirements will be back, but nobody knows when.
