Can You Still Get No Doc Mortgage Loans in 2020?
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Getting a mortgage when you’re self-employed can be tricky. Your loan officer may suggest a no-income verification loan. Also called a no-documentation mortgage, these loans require less paperwork to get approved and may get you to closing faster than a fully documented loan, especially if you have hefty tax returns.
Today’s no-income verification mortgages come with extra consumer protection and could be a viable alternative to a traditional home loan.
- What is a no-income verification mortgage?
- Do you need a no-income verification loan?
- How to get a loan with no-income verification
- Are no-income verification mortgages safe?
What is a no-income verification mortgage?
A no-income verification mortgage doesn’t require standard income documentation like paystubs, W2s or tax returns for approval. The lender allows you to use other items, such as bank statements, to show that you can repay a mortgage.
Stated-income loans were popular for self-employed borrowers before the housing crash in 2007 to 2008. Under the old stated-income programs, borrowers would essentially “state” whatever income was needed to qualify.
Variations of these types of loans included:
- SISA. Stated-income, stated-asset loans are made without verification of a borrower’s income or assets. Stated-income loans are no longer available.
- SIVA. Stated-income, verified-assets loans are when lenders accept your assets as the basis for approval. They’re often called “bank statement loans.”
- NIVA. No-income, verified-assets loans are similar to SISA loans, except no-income is added to the application.
- NINA. No-income, no-asset loans have made a comeback, but they’re available only for real estate investors buying rental properties. This type of no-doc mortgage requires enough rental income to cover the new mortgage payment.
Do you need a no-income verification loan?
Lenders analyze self-employed income differently from salaried or hourly earnings. You may want to consider a no-income verification loan in the following scenarios:
You had business expense write-offs last year. If you made large equipment or commercial property purchases, writing off the expenses may have pushed your net income down. Because lenders evaluate a two-year history when averaging self-employed income, the low year of earnings could hurt your approval chances.
Your income declined recently. Alarm bells go off with traditional lenders if your income drops, especially if you’re self-employed. In that case, no-income verification programs allow you to get a mortgage without tax returns.
You file multiple tax returns. The more streams of income you earn, the more complicated your tax returns are likely to be. As a result, a no-tax return mortgage might be a viable alternative.
You have irregular income. Freelance workers or contractors may get large lump sums of money a few times a year. That makes it hard for a traditional lender to determine your income.
You’re a real estate investor. Ability to repay rules apply only to primary residences and second homes. Investors might qualify with the projected rent on the property they’re buying without any other asset or income documentation.
You have a high net worth but no job. If you’re at a point where working is no longer necessary because you’ve reached a high net worth, a no-doc mortgage loan may allow you to convert your assets into qualifying income.
How to get a loan with no-income verification
Lenders offering alternative income documentation loans must make a good faith effort to show you can repay the loan. That means they’ll ask for other proof you can afford the payments.
Below are the common requirements for no-income verification mortgages.
- Bank statement mortgage. Lenders calculate income based on an average of deposits made into your personal or business accounts over a 12- to 24-month period.
- Asset-based mortgages. Also called an asset depletion loan, lenders qualify you based on up to 100% of your liquid assets divided by the term of your loan. For example, someone with a $1 million net worth applying for a 20-year fixed asset depletion loan, would have $50,000 per year of qualifying income.
- No-income, no asset loans. Available only for investment properties, current no-income, no asset (NINA) loans are approved based on projected rental income for the property being purchased. Typically, as long as the rent covers the new mortgage payment then no-income or asset documentation is needed.
- Have good credit. No-income verification mortgage programs generally require a higher credit score than a regular loan with income documents.
- Make a big down payment. The down payment minimum on no-doc mortgage loans usually starts at 20%.
- Expect higher interest rates. Lenders may charge higher rates than you’d pay for a regular mortgage to cover the higher risk of forgoing documentation.
Are no-income verification mortgages safe?
Stated income loans were meant to help people with varying self-employment income buy a house. Lenders took advantage of the easy qualifying process to speed up the approval process and close more loans.
When the housing market crashed and the U.S. entered the Great Recession, many homeowners lost jobs or became underwater on their mortgages. Many defaulted on their loans and lost their homes to foreclosure.
To protect consumers from future loan abuses, the Consumer Financial Protection Bureau enforces ability-to-repay laws set by the government to make qualified mortgages. Qualified mortgages must meet minimum debt-to-income ratio requirements with regular income documentation. This ensures you have enough monthly income to pay all of your debts and new mortgage payment.
Unlike their stated income predecessors, modern-day no-income verification loans require proof of cash flow or assets to protect consumers from falling victim to predatory lending practices.