When financing a home purchase, it is important to understand your options so that you can make the best decision for your unique situation.

Now, among the viable financing options that mortgage lenders offer today are full doc loans. If you are wondering whether or not this is the best option for you, let this article serve as your guide.

What Is a Full Doc Loan?

As the name suggests, these are a type of loan that requires borrowers to provide full documentation of their financial history in order to qualify. Unlike the stated income loan, where the lender would only ask you to state your income and take your word for it, a full doc loan means that you will need to provide documents, like your tax returns, bank statements, and proof of income.

For some people, this is no problem. They have nothing to hide and are confident that they will easily qualify for a full doc loan based on their financial situation. However, others may not want to go through the hassle of providing all of these documents or may not feel comfortable sharing such personal information with their lender.

If you fall into the latter category, then a full doc loan might not be your best option. There are other financing options available that might be a better fit.

But if you are comfortable with providing full documentation of your finances and feel confident that you will qualify, then a full doc loan could be the best choice for you. It is important to work with a reputable lender who can help you understand all of your options and make the best decision for your needs.

The Advantages of Full Doc Loans

Getting a full doc loan will give you a few advantages over other financing products. For one, it often comes with lower interest rates. This is because the lender has more confidence in your ability as the borrower to repay the loan when full documentation is provided upfront.

Another advantage of full doc loans is that they typically have shorter terms than other types of loans. This means you will pay less interest over the life of the loan and can save money in the long run.

Lastly, full doc loans give you more flexibility when it comes to choosing a repayment plan. You can typically choose between a fixed-rate or adjustable-rate mortgage, whichever suits your financial capacity.

Full Doc Loan Requirements

Like other types of mortgage loans, there are also certain requirements that you need to meet in order to get approved for a full doc loan. Here are the loans documentation requisites that most mortgage lenders would require from their borrowers.

1. Tax Returns for the Past Two Years

This is one of the most important documents that you need to provide when applying for a full doc loan. Your tax returns will give the lender a good idea of your financial history and ability to repay the loan.

In case you have any discrepancies in your tax returns, it is important to address them upfront so that the lender can understand why they exist. Discrepancies could lead to a higher interest rate or could even disqualify you from getting approved for the loan altogether.

2. W-Statements for the Past Two Years

Like your tax returns, your W-2 form and other W tax statements will also show the lender your income and employment history. This is important in determining whether or not you have a steady source of income that can support your ability to make the monthly payments for your home loan.

If you have any gaps in employment, it is important to explain them to the lender so that they can understand your financial situation. For example, if you took time off to raise a family or go back to school, the lender will take that into consideration when reviewing your application.

3. Bank Statements for the Past Three Months

To get a good idea of your spending habits and financial history, most lenders would like to see your bank statements. When doing so, they will be looking for things like whether or not you have a history of making late payments or if you have a lot of debt compared to your income.

It is important to keep in mind that the lender is looking for red flags that could indicate that you might have difficulty repaying the loan. If you have any concerns about your bank statements, it is best to sort them out first before applying for a full doc loan.

4. Proof of Any Other Income (Alimony, Child Support, Etc.)

If you have any other sources of income, it is important to provide documentation about them to the lender. These could include things like investment income or even alimony.

The lender will use these pieces of information to get a better idea of your overall financial picture. It is important to be honest about all sources of income when applying for a full-doc loan so that the lender can make an informed decision about your application.

5. A List of Your Debts and Financial Obligations

Stating your debts and other financial obligations is important in a full doc loan application, as it gives the lender an idea of your debt-to-income (DTI) ratio, which helps lenders determine how much you can afford for a loan or whether or not you are eligible in the first place.

When assessing your DTI ratio, the lender will look at things like credit card debt, car loans, student loans, and any other type of debt that you might have. They will also take into account your monthly expenses, such as groceries, utilities, and child care.

Then, they will divide all these debts and obligations by your gross monthly income to come up with a DTI ratio. Most lenders would like to see a DTI ratio of 36% or less, although some may be willing to go higher depending on your overall financial picture.

If you have a high DTI ratio, it is important to work on paying down your debts before applying for a full doc loan. This will improve your chances of getting approved and could also lead to a lower interest rate.

Other Requirements That You Might Need to Comply With

Aside from those listed above, there are also other things that lenders would evaluate to approve your application for a full doc loan.

For example, they might require a minimum credit score that you need to meet in order to qualify. Generally speaking, lenders would require a credit score of 620 or higher in order to give you a full doc loan.

If you have a credit score that is lower than 620, there are things that you can do to improve it. For example, you can work on paying down your existing debts. Also, you can get a credit report, check for any errors that might be dragging down your score, and dispute them.

Lenders might also require a minimum down payment of 20% or more. This is to protect their investment in case you default on the loan, and they need to foreclose on your home. Making a higher down payment could also lead to a lower interest rate on your loan. So, if you are able to do so, it is always best to put down as much money as possible when buying a home.

Applying for a full doc loan is a simple process, but it's important that you understand all of the requirements before starting the application process. This way, you can be sure that you have all of the necessary mortgage documentation and are prepared to answer any questions that the lender may have.

Where to Apply for Full Doc Loans

The best way to apply for full doc loans is with the best bank statement mortgage lenders that specialize in this type of mortgage.

They will have a full understanding of the requirements and can help guide you through the process. They will also be able to provide you with the best interest rates and terms for your situation.

They can even offer you some solutions if you don't quite meet all of the requirements for a full doc loan. So, if you're interested in this type of mortgage, be sure to start your search with these types of lenders.

Can You Use a Full Doc Loan to Refinance a Home?

Yes, you can use a full doc loan to refinance your home. In fact, many people choose to do this when they are looking to get a lower interest rate or change the terms of their loan.

When refinancing your home, you will need to go through the same application process as you did when you originally bought your home. This means that you will need to provide refinance documentation, including tax returns, bank statements, and proof of income.

The lender will also want to see a new appraisal of your home in order to determine its current value. They will use this information to decide how much money they are willing to lend you for the refinance.

How Long Is the Usual Term for Full Doc Loans?

The typical term for full doc loans is 30 years. This is because it gives borrowers a lower monthly payment than shorter terms, such as 15 years.

However, you can choose any loan term that you want when applying for a full-doc loan. Some borrowers may opt for a shorter term in order to pay off their homes faster, while others may choose a longer term in order to have smaller monthly payments.

At the end of the day, it all depends on your personal financial situation and what works best for you.

Conclusion

Full doc loans are a great option when you are buying or refinancing a home. Just be sure that you understand all of the requirements and have all of the necessary documentation before starting the process. And again, only work with reputable mortgage lenders to get the best deal possible for your situation.

If you have any questions about full doc loans, feel free to ask in the comments section below. We would be happy to help! And, if you're interested in learning more about other types of mortgages, check out the other blog posts on our site!

Featured