Basic Terminology: Documentation Type

Most mortgage loans require that the borrower provide some type of documentation of their income and assets. There a several levels of documentation that are acceptable, and each has a different potential impact on the loan. Available doc types vary by lender, but the most common are Full, Limited, Stated and No Doc. Full documentation usually means that the borrower is required to provide two years of W2s or tax returns, full details of employment, and verification of any mortgage or rental activity for the same period. Full doc loans are the most common and don't incur any special rate increases or additional qualification restrictions. Limited documentation loans are generally based on bank statements rather than W2s or tax returns, and are designed to help self-employed or 1099 employees better document their earnings. Limited documentation loans are held to tighter standards than full doc loans, with common restrictions including lower maximum LTV and allowing only owner-occupied properties. In addition, limited doc loans have a higher interest rate than a similar full doc loan. Stated income is used when a borrower prefers not to provide the documentation required to prove their income. This can be useful in cases where borrowers don't have regular wages or there are privacy concerns. The stated income will need to be reasonable for the borrower's line of work, and employment is usually verified for the past two years. Stated doc loans have even more restrictive qualification guidelines than limited doc, and often carry a higher interest rate. No doc loans are available, though they are very restrictive. Only borrowers with nearly perfect credit reports are able to qualify. These loans carry a large interest rate hike to offset the lender's greater risk. Many lenders do not do no doc loans, and the vast majority of those that do are sub-prime. In general the more documentation that you are willing and able to provide the easier it will be to get a mortgage loan and the more options that will be available. The interest rate almost always goes up steeply as doc type goes down.