Understanding Mortgage Doc Types and Terms

Whether you have a current mortgage or have been trying to apply for one, it is most likely that you also have encountered the level of income and asset documentation you are required to provide the lender. If that is not the case, then it is very important that you learn one of the most rigorous processes in loan application – documentation. There are a few of documentation types of doc types. The most popular and widely used are Full and Stated Doc.

The doc type mainly refers to the meticulous methodology of verifying the data you have provided for the approval of your loan. The details may include your income and assets statements. There are also different levels of risk to the lender depending on your documents with respect to their required files. Upon calculation of the risk, so are the interest rates finalized.

Before understanding the main particulars of the above mentioned doc types, you need to once again be accustomed to these terms:

§ Verification of Employment (VOE) – usually sent through fax to your current employer. He would fill out the necessary facts about your at least two years of service to his company. He would then send it back to the lender.

§ Cash reserves or Liquid Assets – amount of your assets to be evaluated whether liquid by the lending agency. This may include checking, savings, stocks, IRA or any monetary account. These are considered in months to be calculated basing on the combined payments of loan principal, interest, property taxes and insurance for the new loan.

§ Seasoned Assets – lenders would require that your cash reserves have seasoning of at least two months or the same timeframe for the same account.

§ PITI or Principal, Interest, Taxes and Insurance – combined payment for every month which the lender would regard as housing expenses. For the interest-only new loan, ITI are the only ones required.

Here are the two above mentioned popular ones: Full Doc or more commonly known as “going full doc” is a type of loan that verifies your income and seasoned assets for the past two years. You would be required to give two years worth of tax returns (W2s), two months of pay stubs and your VOE. In case you have not yet reached two years of service with your current employer, the lender could ask you to compile your other VOEs from other companies for two years. However, you should be still working in the same field for the said period. As for your assets, the lending company would oblige you to present most recent bank statements confirming 6 months worth of cash reserves. It is important that you are consistent with at least one account if you are about to refinance or buy a home. It is equally vital for the lender to see that your assets have been sitting on the same account for at least two months.

Stated Doc is also known as “going stated” or “liar loans” because you simply have to state your income in qualifying for the loan. However, it is illegal to exaggerate your claim. The most commonly used types are Stated Income/Stated Assets (SISA) and Stated Income/Verified Assets (SIVA). The former pertains to declaring your income and assets upon application without the necessity of verification. Nonetheless, your VOE is still required, but your employer could not be enforced to note about your income. As for the latter type, the assets are verified in the same manner for the full doc.

Other less common doc types include No Income/No Asset (NINA), No Doc and No Ratio. The first one seems a great option as you are not required of any file for the application. But amidst economic recession threats and looming real estate declines, this may be hard to come by. This is usually reserved for those with high credit scores or with large home equity amounts. The second is much alike NINA but requires VOE. This is very high-risk for the lending company, thus the highest interest rates would be given. The last involves the same full doc files, but there is no debt-to-income (DTI) ratio limit. For example, if your full doc loan was turned down due to going over 50%, with this loan type the lender would not even bother looking at it.

Now you have been acquainted with some of the major terms of doc types, you would have more chances of having your loan approved as your options get wider.