The NIV loan is more risky for the lender than standard "Full Documentation" loans, because the income calculation provides the lender with a statistical analysis of the borrower's ability to repay the loan.
Without the income qualification of Full Doc loans, lenders are assuming a higher level of risk. To offset these risks, NIV loans charge higher prices and require larger down payments than comparable Full Doc programs.
Most NIV programs charge interest rates that are 1.50 to 4.00 percentage points higher than comparable Full Documentation loans. For example, if a conforming ARM loan was currently at 6.00%, an A-credit NIV ARM loan would probably be around 7.50%-10.00%.
The most serious cost of the NIV option, however, is the down payment requirement. Most NIV programs require at least 20%-25% down payment for A-credit borrowers; C-credit and D-credit borrowers should expect to make at least 30%-40% down payments.
As you can see, there is no such thing as a free lunch. However, for many investors, the NIV program is an intelligent option. They often find that the loan payments—though at relatively higher rates—are still affordable, and the down payment is merely an investment that they can always recoup with a second mortgage or a sale.
Remember also that you should always view higher rates as short-term. As soon as you are able to qualify for a full documentation loan, you can always refinance to that better rate.
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