What Is A No-Doc HELOC Or Home Equity Loan?

You’ve heard of home equity lines of credit (HELOCs) and home equity loans, which let you borrow against the value of your home, getting ready cash for renovations, debt consolidation or anything else. But have you heard of a no-doc HELOC or home equity loan?

Applicants for them don’t have to jump through the income-qualification hoops that characterize much home-based financing. Catering to borrowers with non-traditional or irregular income, like gig workers, entrepreneurs, business owners or investors, these no-docs don’t demand the same documentation that traditional home equity loans or lines of credit do.

As lenders get increasingly interested in such borrowers, “we are seeing a big spike in these second [mortgages] the most right now,” says Alex Shekhtman, founder and owner of LBC Mortgage, a no-doc HELOC broker based in Los Angeles.

Let’s break down how you can decide if a no-doc HELOC or home equity loan is right for you.

How do no-doc HELOCs and home equity loans work?

Actually, the name’s a bit of a misnomer. True, a no-doc HELOC or home equity loan doesn’t require the usual pile of paperwork like pay stubs or W2s typically needed to prove your income or net worth.

But let’s be clear: Just like a no-doc mortgage, a no-doc HELOC doesn’t mean that you won’t have to provide any documentation to the lender. These are not the so-called NINJA or NINA (no income, no job and no assets) subprime loans that gained notoriety back in the mid-2000s. With a no-doc HELOC or home equity loan, you will still need to verify your assets or income, providing alternative sources like 1099 forms, business profit and loss statements, or bank statements.

“Although we don’t need your documentation on this property, we still have to [calculate] the ability to repay, what we call ATR,” says Scott Van Vugt, executive vice president of Production at Griffin Funding, a bank statement HELOC lender based in New Jersey. “That’s a part of the pitch for everybody. It’s just how we get there, which is different.”

No-doc HELOCs and home equity loans are ideal for people with non-traditional income streams, like small business owners, real estate investors, retirees, or self-employed workers/independent contractors. They can have problems during traditional loan underwriting, because they aren’t getting the proverbial bi-weekly paychecks from an employer. Or their tax returns show little income, because much of what they earn goes back into their company or is taken as a business deduction.

“When they’re self-employed, many people are gonna be a little more aggressive on their taxes or write things off. That doesn’t leave a lot of income left over for qualifying by traditional means,” says Van Vugt. “So that’s when we look at it [your finances] in an alternative way, with the bank statement calculation.”

No-doc HELOC and home equity loan requirements

Lenders don’t just rely on your bank statements or W2s to assess your ability to repay the no-doc HELOC or home equity loan. Along with income, they will also closely scrutinize your home equity stake and credit score.

Strong equity position

Equity is the portion of your home that you own outright, whether through paying down your mortgage or through appreciation of your property’s worth (or both). Your loan-to-value ratio (LTV) – the amount of all your home-based debt vis-à-vis your home’s value — indicates how much equity is available to tap.

With a traditional HELOC or home equity loan, borrowers typically need at least 20 percent equity in their homes or an LTV of 80 percent. But the bar’s often higher with no-docs. As Abraham Ordaz, production manager for California-based no-doc HELOC broker Truss Financial Group, explains, the LTV needed for some no-doc loans can be as low as 60 percent, meaning you need at least 40 percent equity in your home. “It definitely depends on the property type, if it’s owner-occupied or non-owner-occupied, and the borrower’s FICO [score],” he says. Basically, though, it means you can’t tap as much of your ownership stake.

Good credit

Speaking of the FICO score, while 620 is the minimum for traditional home equity products, some no-doc lenders may require that you have a 660 score or above. A credit score of 700 and above will help you secure the best rate and terms. “The underlying thing is you need to have good credit; it can’t be on the lower side of the credit scale,” says Jeff Miller, CEO and broker of record for Truss Financial Group.

But as Van Vugt explains, lenders typically take a flexible approach when evaluating a borrower’s LTV and credit score, and the two are interrelated. “The lower your credit score, the stronger the equity position would need to be. The better your credit score, they’ll be a little more forgiving of your equity position.”

No-doc loans vs. regular loans

No-doc HELOCs and home equity loans are structured exactly like their traditional home equity counterparts. With no-doc HELOCs, you can tap into the line of credit whenever you need it, while no-doc home equity loans give you a lump sum all at once. The HELOCs feature a fluctuating interest rate, the loans a fixed one.

The loan amount will determine if the lender demands a full home appraisal. Nowadays, regular home equity loans and HELOCs often forgo an in-person evaluation, relying instead on a quicker, cheaper automated valuation model (AVM). With no-docs, “if it’s a small amount, let’s say up to $200,000, some of them do an AVM through their system,” says Shekhtman. “If they see that the LTV is low and the FICO [score] is good, they won’t need an appraisal. But in most cases, they do need it.”

Higher interest rates

Since you’re providing less documentation with no-doc HELOCs and home equity loans, the lender assumes more risk. That’s why rates may be higher (by at least one percent) than you would find on traditional home equity products, explains Shekhtman.

Shorter closing times

As no-doc HELOCs require less paperwork, it can be faster to close and receive funds.

“We are going to close quicker, 30 to 45 days, where [traditional home equity loan lenders] might be, 60 days to 90 days,” says Van Vugt. “So we certainly are better on the times.”

DTI requirements

Your debt-to-income ratio (DTI) is an important calculation lenders use when evaluating your application for a HELOC or home equity loan. With standard home equity products, keeping your DTI ratio of 43 or less will give you the best chance of approval. While some no-doc lenders don’t calculate DTI in the usual way, they still assess your financial profile and make sure you can afford the loan. Van Vugt says some no-doc lenders can allow DTIs as high as 45 to 50 percent, Fannie Mae’s maximum for qualified mortgages.

“We color outside the lines for how we calculate the income, but the debt-to-income still has to make sense,” says Van Vugt. “We can’t make up someone’s income. We have to look at the deposits. We have to look at the debts they have. The actual income has to be able to offset the debt.”

History of no-doc loans

While home equity loans have existed for almost a century, no-doc HELOCs and home equity loans are relatively new products. And rather notorious ones, for a while.

Following the 2007-8 subprime mortgage meltdown and subsequent financial crisis, the government took a hard stance against no-doc and stated-income loans, which were blamed for contributing to the collapse of the housing market. In 2010, the Dodd-Frank Act ushered in tighter lender standards and the ability-to-repay rule. It requires lenders to consider and verify a borrower’s income and obligations before approving them for a loan.

Result: No-doc loans all but disappeared. Now, they are making a comeback — but with stricter approval standards. It’s not “as it was before 2008 when someone was able to get a loan just by stating income. Those times are gone,” says Shekhtman. The new no-doc variety of financing still requires demonstrated APR and proof of income. It just accepts different types of proof: a wider range of verifying documents.

Why no-doc loans are popular now

Within these parameters, home equity lenders are embracing these loans: “Pretty much any bank that does no-doc first [mortgages] is opening up no-doc second [mortgages],” Shekhtman says: “They are very common in this market.”

Why? Because home equity financing is having a moment, and lenders are looking to capitalize on the growing number of Americans with valuable properties but without traditional income streams. Many of these borrowers — business owners, independent contractors, etc. — want to tap their home’s value, but don’t want to let go of the 2- or 3-percent interest rate on their first mortgage (as refinancing would require). Additionally, with credit card rates in the double digits — just slightly down from their record high of 20.79 percent in 2024 — borrowers are gravitating to lower-cost vehicles to settle over a trillion dollars in credit card debts. “It’s easier for them to get an 8 or 8 and a half percent rate on a HELOC or HELoan and just pay those off,” says Shekhtman.

Alternatives to no-doc HELOCs or home equity loans

If you need financing but are running into roadblocks like your credit score or equity stake, here are a few other options for tapping into your home equity:

• Cash-out refinance: A cash-out refinance replaces your current mortgage with a larger one, allowing you to take out the difference (based on your home’s value) in ready money. Interest rates and criteria tend to be lower than those on home equity products, but not necessarily lower than your original mortgage’s.

• Reverse mortgage: If you are 55 years or older, a reverse mortgage allows you to borrow against your home equity and receive tax-free payments from a lender. While a reverse mortgage doesn’t require repayment while a borrower is living, it can complicate matters for heirs once the borrower dies.

• Shared equity agreement: An arrangement in which an investor gives a homeowner cash in exchange for partial ownership, and often a share in the future appreciation of the home. While qualifications are flexible, and there’s no interest, you will likely have to repay a much greater sum than you received.

Bottom line on no-doc HELOCs and home equity loans

No-doc HELOCs and home equity loans offer an easier way for homeowners whose income stems from something other than the traditional payroll to tap their equity.

However, while the no-docs offer less paperwork and faster approval, you may face higher interest rates than you would on standard equity financing. “Alternative documentation is going to be a little bit more expensive,” says Van Vug. Frankly, “if you can qualify for a traditional HELOC with your credit union or banking institution, that’s where you’re going to get the most aggressive rate.” The equity requirements are also less stringent, and the loan-to-value ratios are often more liberal, than on the no-docs.

Still, no-doc HELOCs and HELoans could be an unconventional borrower’s best shot. If that’s you, and you’re shopping around, you could always consider both options. Mainly, it comes down to deciding whether a more streamlined process outweighs the higher costs and tighter lending standards.