No income verification mortgages still exist, but they are extremely difficult to obtain. Most of these mortgages are offered to self-employed professionals who are, in turn, required to make a significant down payment on their loan. No verification loans are also known for their accompanying costs, which take more out of the pocketbook from borrowers.
Where Have No Income Verification Mortgages Gone?
Prior to the loan crisis and housing bust, many lenders granted "no doc" or "liar loans" to consumers like they were handing out candy. The "no doc" loans were not based on income, but on credit history. Consequently, when housing prices plunged, banks were left holding the bag, unable to recover defaulted amounts on loans based solely on credit histories.
In the new era of lending reform, consumers won't find a "no doc" mortgage if they have a FICO score below the 700 range and even so, the loans may be priced two or three points above the par rate. The largest number of "no doc" loans available today tend to go to self-employed people who have to indicate their income without the benefit of pay stubs and W2 forms.
Self-employed and No Income Verification Mortgages
Many of the estimated 9 million self-employed professionals in the country make good incomes, but fall short of lender's income reporting requirements. Moreover, many self-employed individuals report deductions (home office, etc.) that actually reduce the net income they can report to lenders. According to U.S. News, self-employed mortgage seekers should amend tax returns to show progressively increasing net income even if it impacts the total tax bill. Perhaps the most emphatic tip among mortgage planners is that self-employed borrowers clearly separate their business and personal bank accounts. Doing this will increase your chances of qualifying for a mortgage when the time is right.
About Stated Income Loans
As the market improves, some lenders are relaxing the firm responses in policy in the aftermath of the Dodd–Frank Wall Street Reform and Consumer Protection Act. This time out, the lender doesn't rely on pay stubs, tax returns or W2 forms in evaluating applications for stated income loans but uses other forms to measure risk. Many of today's stated income/verified asset mortgages are offered by smaller banks that base income qualifications on FICO scores, a stable work history, and at least 40 percent equity in the property.
Lenders will still verify employment and may require the borrower to approve their access to two years of IRS returns. In the case of self-employed applicants, the lender may require letters from a CPA acknowledging income. These borrowers typically will be required to make a large down payment (up to 30 percent) and absorb as much as .50 percent higher costs than in a verified income loan.
Lenders offering income verification mortgages set their own qualifying standards. For example, salary requirements vary dramatically from region to region in the county, with New York and Los Angeles borrowers looking at three-digit incomes to qualify for some homes. Because of the geographical distinctions, consumers should evaluate several offers. You can use LendingTree's Loan Calculator to discover how much you can afford on your present income.