No Doc Loan

A no doc loan was a mortgage made without verifying the borrower's income, assets or employment, common before 2008 and largely eliminated by the ability-to-repay rules that followed. DSCR loans are their successor for investors: no income documents, but the property's rent has to cover the payment.

No doc and low doc loans relied on credit score and down payment alone and were often used for owner-occupied purchases. When defaults mounted, regulators required lenders on consumer mortgages to verify and document the borrower's ability to repay.

Business-purpose loans on investment property are exempt from those rules, which is the legal room DSCR loans occupy. The difference from the old product is the coverage test. A no doc lender asked nothing about repayment. A DSCR lender asks one hard question, whether rent covers the full payment, and verifies it with a lease and an appraiser's rent schedule.

Further reading: No Doc Loan on Wikipedia.