No-Income Verification Mortgage: How Does It Work?
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Summary:
When you apply for a mortgage loan, the first thing lenders will want to confirm is that you’ll be able to consistently make your monthly mortgage payments. Most traditional lenders determine this via income verification; however, not everyone can prove they make enough income to reliably cover their monthly payments. A no-income verification loan relies on financial information other than income for approval, making it an appealing option for borrowers who cannot qualify for a mortgage based on their income alone.
Perhaps you’re looking to buy a property, but you don’t have a consistent income. Whether you’re a real estate investor, a freelancer, or anyone else with a non-traditional source of income, you may be wondering if you can qualify for a mortgage at all. Fortunately, the answer is a resounding yes: if you can’t prove qualifying income for a traditional home loan, you may be able to obtain a no-income verification mortgage instead.
Read on to learn more about no-income verification loans, including the different types of no-income mortgages and what you need to qualify for these loans in place of income verification.
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What is a no-income verification mortgage?
No-income verification mortgages, sometimes known as no-documentation loans or no-doc mortgages, are designed for borrowers who cannot prove they make enough money to qualify for a conventional mortgage through standard income documentation, such as W-2s, pay stubs, and tax returns. Instead, a borrower’s assets are analyzed by a mortgage lender to determine if those assets bring in enough cash flow to cover the monthly payments on a no-income verification mortgage.
It should be noted that no-income loans are considered riskier than conventional loans, and therefore they are not typically offered by banks. You are more likely to find a no-doc mortgage at a credit union or from a private or portfolio lender. It may also take more time, says Gagan Saini, Director of Acquisitions at JiT Home Buyers.
“Securing a no-income verification mortgage can take time due to the risk involved for lenders. Unlike traditional mortgages, income isn’t verified, but creditworthiness and assets are evaluated. Stated income and bank statement loans cater to self-employed or irregular-income borrowers.”
Saini notes that you should also expect to pay a higher interest rate than you would on a conventional loan:
“While these loans offer flexibility, they often come with higher interest rates. It’s crucial to research reputable lenders, beware of overborrowing, and seek professional guidance to make informed decisions and mitigate potential risks.”
Who can benefit from a no-income verification loan?
A no-income verification mortgage isn’t the right option for everyone looking to buy a home or rental property. That said, there are multiple scenarios in which it might make sense for you:
- You have inconsistent income: Not everyone has a consistent monthly income that’s both easy for lenders to verify and enough to qualify for a conventional loan. If you work on commission, get paid in tips, or run your own business, a no-income verification mortgage might be a good loan option for you.
- You’re retired: Many retirees have a high net worth even if they don’t have verifiable income. If you fall into this category and most of your money is stored in investments and retirement accounts, you may benefit from a no-doc mortgage.
- You’re an investor: Whether you’re a real estate investor or you go big on the stock market, your income streams may be complex and difficult to quantify. In this case, a no-income loan may be a good fit for you.
- You file multiple tax returns: If you have a high net worth but a complicated tax situation, you may find it simpler to apply for a no-doc mortgage that doesn’t require tax returns to prove your income.
Types of no-income verification loans
There are multiple different types of loans that fall under the umbrella of no-income mortgages. If traditional mortgages are out of your reach due to income limitations, you may want to explore the following options for no-income mortgage loans:
Stated income, verified assets (SIVA)
A stated income, verified assets loan — often known as a bank statement loan or a stated income loan — is, as the name implies, a type of loan that allows you to simply tell the lender what you make without having to provide proof of income through pay stubs or tax returns. This is often a solid loan option for self-employed borrowers, as you only need to produce bank statements as proof of your assets.
No income, verified assets (NIVA)
NIVA loans are similar to stated income loans, with the key difference being that for the former, income and employment are not even factors considered for approval. Instead, no-doc mortgage lenders focus solely on verifying your assets. As long as you have enough cash flow from assets to make your monthly mortgage payments, most no-income verification lenders should approve you for this type of loan.
Stated income, stated asset (SISA)
Stated income, stated asset loans (SISAs) are now only available to borrowers purchasing investment properties. You do not need to produce proof of income or assets for this type of loan. After changes in legislation following the 2008 financial crisis, this type of no-doc loan can no longer be used to purchase a primary residence.
No income, no assets (NINA)
NINA loans are only offered to real estate investors and do not require proof of income or asset verification. Instead, mortgage lenders evaluate the potential rental income of an investment property before they approve a loan. If the rental income from a property you wish to purchase provides enough cash flow to cover the monthly payments on a mortgage, you may be able to qualify for a NINA loan.
Pros and cons of a no-income verification loan
No-income verification mortgage loans can be a great choice for borrowers who may have trouble qualifying for a conventional mortgage. Before you apply, however, it’s important to weigh the benefits and drawbacks of no-doc mortgages:
Pros of a no-income verification mortgage
- No-income verification mortgages are a great option for self-employed individuals, real estate investors, and other borrowers without qualifying income for conventional loans.
- You can qualify using only proof of assets, such as bank statements or investment account statements.
- Traditional income verification is not required for this type of loan.
- In many cases, you don’t even need to be employed to get a no-doc loan.
- If your income changes, your loan application won’t be negatively affected.
Cons of a no-income verification mortgage
- A no-income mortgage loan usually requires a large down payment (as high as 50%).
- No-doc loans often require higher credit scores than traditional mortgages.
- A no-income verification mortgage typically comes with a higher-than-average interest rate.
- In some cases, you may need to prove that you have sufficient cash reserves to cover a year’s worth of mortgage payments.
Pro Tip
Before you agree to a no-income verification mortgage, be sure to carefully read the loan agreement. No-doc loans aren’t as regulated as conventional loans, so you’ll want to watch out for unfavorable clauses, such as prepayment penalties or balloon payments.
How to qualify for a no-income verification mortgage
As mentioned previously, mortgage lenders want to ensure that a borrower’s income is enough to cover the mortgage payments on their loan amount. If a mortgage lender cannot verify your income through standard income documentation, like tax returns and pay stubs, you won’t be able to qualify for traditional mortgages. This is often a stumbling block for small business owners, self-employed individuals, investors, and other borrowers with non-traditional income streams.
Luckily, there are mortgage lenders who will offer a mortgage to a borrower based on their net worth or assets instead of their income (thus, a no-income verification mortgage). For example, retirees, investors, and self-employed workers can provide documentation of their assets through bank statements, investment account balances, or proof of income from rental properties, among other detailed financial records of assets.
The basic requirements for no-doc mortgages include the following:
- Documentation of assets: These include documents such as bank statements and proof of income from rental properties or investment accounts.
- A large down payment: Expect to pay a minimum of 20%, though your required down payment could be as high as 50%.
- A better credit score: You’ll typically need a minimum credit score of at least 700 to qualify for a no-income verification mortgage.
- A high interest rate: Because of the higher risk to lenders, mortgage rates for no-doc loans are higher than those for traditional mortgages.
- Cash reserves: Some mortgage lenders may require borrowers to have enough cash reserves to cover up to 12 months of loan payments.
Pro Tip
Between the higher down payment, the closing costs, and the potential need for cash reserves, borrowers of no-income verification mortgages should plan to have a significant amount of cash on hand before beginning the mortgage process.
Key Takeaways
- No-income verification mortgages are designed for borrowers who cannot qualify for a traditional mortgage loan based on verifiable monthly income, such as self-employed borrowers, small business owners, and real estate investors.
- Instead of income verification, no-doc mortgage lenders rely on a borrower’s assets — such as investment accounts and bank statements — to determine their eligibility for a home loan.
- Due to the lack of traditional income documents, such as pay stubs and tax returns, no-income verification mortgages can be harder to qualify for than conventional loans.
- Compared to conventional loans, no-income verification loans typically require an excellent credit score and a higher down payment, and they often come with higher interest rates.
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