Nationwide Home Mortgage Loan Company

Documentation type (Doc Type) and loan to value ratio’s go hand in hand. Documentation type is the manor in which you will prove your income that determines your debt to income ratio (DTI). If you are not familiar with what a debt to income ratio is you should take a minute to review this short debt to income summary to figure your debt to income ratio. It is very important when determining documentation type.

Documentation type refers to the documents that are used to prove the information that is on your loan application. You may be prepared to offer all the documentation that the lender request from you, however that doesn’t mean that these documents will help your case when an underwriter reviews them.

There are hundreds of rules that are handed out via Fannie Mae and Freddie Mac that dictate how underwriters are to calculate income, loan to value and employment verification. The scope of this tutorial is to explain documentation types and help you decide which one you may need to use.You should know what documentation you are prepared to provide.

Before a loan officer gives you a rate or closing cost they will attempt to determine if you can prove enough income and assets to obtain a conforming approval. Most self employed people write off nearly as much as they make due to our tax structure. This means that for the purposes of approving a loan the underwriter must deduct the expenses from the gross revenue. After this deduction self employed borrowers usually do not show enough income to qualify for conforming loans. Below you will find the most common documentation types and how underwriters calculate the income.

ALL Lenders require that you PROVE everything you put on a mortgage application for a full documentation loan. Income, employment, length of employment, job time, time in your field and so on. This is called a “full doc” loan. If you are unable to prove this information you may still get the loan….but the price is going up. When see rates and closing cost advertised they are quoting a “full doc” loan. In today’s market a large percentage of borrowers will not qualify for a full doc mortgage.

The documentation types falls into these categories: (To see how underwriters determine these classifications see debt to income.)

• Full Doc - Prove all income and assets.
• Reduced Doc - (Stated Verified) State income Prove assets.
• Stated - (Stated / Stated) State income State assets.
• No Ratio- Prove employment and assets do not state income
• No Doc - Sign your name 80 times and get a loan.

Conforming loans (fannie Mae, Freddie Mac) allow for Fully documented loans and reduced doc loans, period. This is how you get your best interest rate. If you do not fall into these categories you will be doing an Alt-A loan. Alt-A loans, or portfolio loans, are loans that are for the most part conforming but lack the full approval that Fannie and Freddie offer.

This means that the lender that makes this loan has a higher risk factor portfolio of loans and the loans will bring less on the secondary market when sold. So for any loan that is not a conforming loan you will pay a premium.

Fannie and Freddie charge a premium for reduced doc loans. Rates and closing cost are merely a reflection of the risk factor you present to the lender when you borrow money. These risk factors are categorized as documentation types. In the following pages we will discuss the different risk levels (Doc Types) in detail so that you can decide which one is best for you.

Tags: debt to income ratio, doc type, documentation type, Mortgage Basics, Mortgage Tips

This entry was posted on: Saturday, June 7th, 2008
Other Categories: Mortgage Basics
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