So, with all these choices of documentation levels, why not just choose the easiest method and get on with one's life without all the hassle of loan paperwork? There are a couple of reasons: rate and term.
Lenders do not like surprises.
They want everything laid out in front of them so that they can make an informed lending decision.
Debt ratios, down payment requirements, employment history-all of these are part of a track record that can steer a lender toward making the correct decision.
When a borrower protects something about his application or otherwise does not fully disclose, the lender is now faced with an added element of risk.
If a lender encounters greater risk, then guess what? The lender must offset that risk by either increasing the interest rate on a particular transaction, lowering the allowable debt ratios, or requiring more money down from the borrower.
Many applications automatically apply such risk adjustments when making a loan decision by asking for less documentation for loans that apparently have lower risk.
But when loans get past the conventional stage and enter the world of stated or no documentation (discussed later in this chapter), then risk balance is introduced.
Documentation levels should be considered on a case-by-case basis.
If you would rather not produce the mounds of data the lender wants to see and you are willing to take the additional hit in interest rate, then by all means do it.
That is why lenders issue such loans.
But if you are providing less or no documentation simply because the documentation does not exist or because you are faking some income -do not do it.
Your new home could be an 8