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No Income Loans

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No Income Loan

No Income program is a perfect fit for investors who don't qualify for traditional financing based on their tax returns. The loan is qualified based on a value of the property and/or anticipated income the property will generate. Self employed borrowers should also review our Bank Statement program. 

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Are you an investor struggling to document income for your mortgage lender? Does a no income verification loan still exist and how hard is it for you to get one? If you invest in income producing real estate and are in need of unconventional mortgage financing, a no income verification loan could be the answer to your financing needs. Here are several tips to help you find lenders that offer stated income loans and pitfalls you’ll need to avoid in the process.

What Is a No Income Verification Loan?

Before the financial meltdown in the housing industry, mortgage lenders routinely offered “no doc” home lending. These were commonly referred to as “stated income” as the borrower only had to allege their monthly money and approval was based almost solely on credit score. When the bottom fell out on home values during the crisis many lenders were unable to recover from their losses.

Following the mortgage crisis lenders no longer offer “no doc” programs as they existed before; however, under the right circumstances for real estate investors it is possible to find and qualify for no income verification lending.

The problem in qualifying for a no income verification mortgage used to be that you are often need a FICO score greater than 700 and if you do qualify your loan could require a hefty down payment. These mortgages are often priced as many as three points higher than a traditional mortgage loan. Today lenders are offering portfolio lending programs for investors where the down payment is based on your credit score, making it much easier to qualify.

If you’re a self-employed homebuyer you may bring home a good income but struggle to meet many lenders income verification rules. Without w-2’s and pay stubs it can be difficult to document income, especially if you claim significant deductions on your tax returns such as depreciation for your business assets.

Stated Income Mortgage Loans Are Making a Comeback

The housing market has improved significantly and more and more smaller banks and boutique lenders are offering different types of no income verification mortgage. While these lenders do not rely on w-2 forms, tax returns and paycheck stubs to verify income, they all use other means to minimize their risk. 

These no income loans often have strict credit score requirements, require a down payment of as much as 30 to even 50 percent of the purchase price, and have interest rates that are 2-3 percent higher than conforming mortgages. The good news is that many portfolio lenders have eliminated DTI ratio calculations and approval is based on the cash flow created by your income producing property.

Most traditional lenders verify proof of your employment and the solvency of your business if you are self-employed. This could even require several years of personal or business tax returns despite being “no income verification.”

You might find it odd that stated income lending programs, even in their current form are making a comeback at this time after the government named risky no income lending as one of the leading causes of the economic collapse.

Stated Income Loans Not for Owner Occupied Housing

Owner occupied home mortgages are regulated by the Consumer Financial Protection Bureau in the United States and it is illegal to get a stated income mortgage on a consumer owner-occupied home. That means you can’t purchase or refinance your own home using a no income verification mortgage. These programs exist today for real estate investors that purchase income producing properties.

Keep in mind that the requirements for this type of lending are strict and make qualifying difficult. If you are purchasing a rental home your down payment contribution could be as high as 30 percent or even 50 percent based on your credit score. Many of these loans have a maximum loan to value ratio of 70 or 80 percent, requiring 30 to 40 percent down just to qualify. As with traditional mortgage lending the interest rate you receive is based on your credit score.

Keep in mind that despite being called “no income verification” many lenders will require employment and business verification, bank statements and asset verification along with a stellar credit score profile of 700+ to qualify. 

Using Stated Income Loans to Buy Rental Property

Many investors today are using stated income borrowing to buy investment properties under a Limited Liability Company to improve their cash flow from rental income. The large down payment requirement often makes this type of mortgage restrictive for some buyers. Many investors find these “low doc” mortgages preferable to working with hard money lenders.

Hard money lending comes with very short term lengths, much higher interest rates and often an excessive number of points.

Types of Stated Income Lending Programs

There are several types of stated income lending that you will want to be familiar with. Unlike full documentation loans these loans require varying amounts of income and asset verification, despite the old nomenclature.

The first type is a stated income/verified assets (SIVA). This type allow you to allege your income on the application and verify your assets with statements and tax returns. 

There are also stated income/sated assets(SISA) with allow you to allege both income and assets on the application. The amount of verification required will vary depending on the lender and can be very difficult to qualify for with strict credit score and down payment requirements. 

Employment Verification Can Be Avoided

Lenders that offer no income borrowing often reduce their risk by verifying employment and your business solvency. This may require more than just a letter from your Certified Public Accountant.  In many cases your job title will also affect your ability to borrow using this type of mortgage. Overstating your income based on your profession or job title is a quick way to get your application denied.

As the market improves many boutique lenders are advertising low doc mortgage programs without employment verification for investors. If you hold a portfolio with multiple income-producing properties lenders can often use this revenue as the bases to approve your application without employment verification.

Credit score requirements are even being relaxed for many real estate investor programs; however, the lower your credit score the higher your down payment requirements become. In some cases, it is possible to get a mortgage of this type with a credit score as low as 640 if you are putting at least 50 percent down at closing.

If you’re a home buyer or real estate investor that has struggled documenting income following the financial crisis you will be encouraged to learn that low-doc mortgage lending is making a comeback. If you meet the credit and portfolio requirements for  investor loans you can leverage this type of financing to effectively grow your portfolio and income stream.