Broker – don’t fear this mortgage product

“There’s no stated income as there was before,” he said. “Before, you stated on your application ‘I make $20,000 a month’ you put no down payment, and nobody checked anything. As long as you had a pulse and a FICO score you got a loan. Right now, they call it a non-QM loan which is basically similar to a no -doc loan. Most of these loans are designed for self-employed people. What changed from back in the day is you have to put a down payment, say 30% down, and the lowest is 10%. That’s probably the biggest difference from then and now.”

Today’s no-doc loans can be secured with a FICO score as low as 640. “But with 640, it’s going to be a rate so high, so they still have OK credit,” given prevailing standards, Shekhtman said. “Before, credit was important, but they were doing much lower FICO scores than now. It still makes sense for the bank to lend.”

Bank statements also figure prominently, he added, giving the example of a restauranteur seeking a loan in today’s market – say one making $50,000 in sales. “They deduct $20,000 as expense and the rest is income. It doesn’t make much sense, but they ask how many people are working for you, how many are marketing online. We’re going to use his bank statements. That’s the safety from the banks when they feel confident giving a personal loan because they know there’s skin in the game. He used his own payment, and he’s not going to walk away like a lot of people did in 2008 during the collapse.”

No-doc loans of today also cover investors, he noted. The cover for banks – as opposed to the free-wheeling days of the early aughts – is that banks will demand to know if the rental income on investment properties cover the loans payments. “If rent will cover the payment, banks will feel confident,” Shekhtman said.