Lenders have formulated loan systems based on the type and affordability of different borrowers. Lenders have made four categories of loans which possess a natural progression according to the terms they offer. Here are the four types.
1. Full Documentation Loan (Full Doc)
Full doc loans are the fundamental type of loans. They are built for the borrowers who have documents to show for good credit scores, are employed and in perfect state to manage payments for all their existing and future loans. Documentation is the key to establish credibility of the borrowers. Lenders highly prefer such borrowers who can easily afford to borrow their loans and they are ready to offer their best deals to these borrowers.
2. Stated Income Loans
In these loans the borrowers show documents only to prove their income but no proof for assets is given. They must still have good credit scores and be employed for last two years. Lenders ask for high rates and fees in this case as the income of borrowers is high and makes them capable to pay back. Steady flow of good income ensures that the borrowers can afford to manage monthly payments.
3. Stated Income/Stated Assets
Borrowers may not provide full documentation of their income and assets they possess to the lenders in this category of loans. But it is still compulsory for the borrowers to hold a good credit score. Lenders base their assessment of giving the loans on the credit score which has to be around seven hundred. Because of the credit score lenders still demand high rates from borrowers.
4. No Documentation (No Doc) Loan
First three types of loans require at least a document for income and employment but in no doc loans lenders ask for no documents. The borrowers again have to show a good credit score that means borrowers who fall in this category may not be working in the same field of job for last two years or possibly are self employed. Borrowers usually find these loans comparatively expensive.
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