Are you looking to buy a home with a home loan but face challenges when it comes to providing proof of income? Are you self-employed and not receiving traditional pay stubs and W-2s? If this is the case, you may feel as though buying a home is out of reach. However, there is good news. Many lenders offer what is called a no-income verification mortgage and it may just be the solution you are looking for.
Here we offer a comprehensive guide to this non-traditional mortgage and how it can help you achieve home ownership.
Key takeaways
- Learn what a no-income verification mortgage is.
- Understand the pros and cons associated with a no-income verification mortgage.
- Explore the different no-doc loans available and what they mean for you.
- Learn what qualifications are necessary for no-income verification mortgages.
What is a no-income verification mortgage?
When you hear the term “no-income verification mortgage,” you may assume that these loans do not require income verification at all. The fact is, however, that proof of income and assets is still required, but the traditional method is slightly different.
When applying for a conventional mortgage, borrowers must show proof of income and liquid assets to the mortgage lender. In these cases, the standard income documentation includes regular pay stubs and W-2s. But what happens if you do not have these items? How do you show proof of income and qualify for a mortgage?
A no-income verification mortgage does not simply take your word when it comes to your net worth. Instead, this type of mortgage allows for non-traditional income documentation, which can include things like bank statements, tax returns, pensions, and investment accounts. They are a great option for self-employed individuals, real estate investors, private contractors, and small business owners.
How does it work?
With a no-income verification mortgage, also known as a no-documentation loan, borrowers must still produce income information that shows the loan officer that they have the ability to pay back the mortgage. Unlike traditional mortgages, borrowers can provide many different third-party records to provide this proof of income and assets. This can include bank statements,
No-income verification mortgage: Pros and cons
When deciding if a no-income verification loan is right for you, it is important to consider the pros and cons of this mortgage type.
Pros
- No borrower’s income documentation is required
- Your assets may be enough for approval
- Great for self-employed borrowers or investors
Cons
- Higher down payments required
- Higher interest rates required
- Higher credit scores required
Types of no-doc loans
When it comes to no-income verification loans, lenders can offer several different types of loans. Each of these loan types has its own individual requirements and your lender will work with you to determine which one best meets your needs. Some different loan types include:
- Stated-income, stated asset (SISA): This loan is only available for investment properties and does not require the verification of income or assets. After the housing crisis, federal legislation banned this type of no-doc loan for owner-occupied homes and primary residences.
- Stated income, verified assets (SIVA): Also known as a bank-statement loan, the SIVA allows for a stated income loan without verification and only uses your bank statement for asset verification.
- No-income, no-assets (NINA): This is a loan type limited to real estate investors that are purchasing rental property that will provide rental income to repay the loan, so no income information is required. There are not many lenders that offer this type of mortgage.
- No-income, verified assets (NIVA): Similar to a SIVA loan, except there is no statement of income, and income or employment is not considered at all.
Eligibility and requirements
While a no-doc mortgage means you don’t need to provide traditional proof of income and assets, it does mean that lenders will take additional precautions to ensure that you are financially responsible in order to reduce their risk of borrower default. In order to do this, the eligibility requirements are often higher than those lenders offering traditional mortgages. The basic requirements for a no-income verification loan include:
- A credit score of 700 or higher
- The ability to make a large down payment, often 20-30% or more
- Provide documentation that shows your assets and income
- Willing to pay substantially higher interest rates for the life of the mortgage loan
No-income verification mortgage vs. other mortgage types
| Loan Requirements | No-Income Verification | Conventional Loans | FHA Loans |
|---|---|---|---|
| Income Documents Required? | No | Yes | Yes |
| Credit Score | 700 | 620 | 580 |
| Down Payment | 20 - 30% | 3.5% | 3% |
| Interest Rates | Higher than traditional mortgages | Lower than no-doc mortgages | Lower than no-doc mortgages |
Should you get a no-income verification mortgage?
Deciding whether a no-income verification mortgage is right for you depends on a number of different factors. If you are self-employed, a business owner, or a real estate investor, where easy income verification may pose a challenge, then this mortgage type may be the right option for you. However, you must also determine whether or not you have a sizeable amount on hand for the required down payment and if you are willing to pay the higher mortgage rate for the life of the loan. In many cases, this loan type may be the only option you have available to purchase the home of your dreams.
Choosing the best mortgage option for your needs
As a self-employed individual or business owner, a no-income verification mortgage may be the only loan option you have available when it comes to purchasing your new home. While you may still be able to qualify for a conventional mortgage with detailed financial records and information, it can extend the closing time while the information is verified by the lender. However, you can benefit from the lower down-payment requirements and interest rates.
