How to Get a Mortgage Loan without Tax Returns and Traditional Income Documentation
Many Americans today decide to go the self-employment route rather than working for a company sitting in a cubicle for the next 30 years. Being self-employed can be highly rewarding because you control your own destiny and control how much money you earn.
However, being self-employed can complicate getting a mortgage. Without the standard two years of tax returns to prove your income to lenders, it can often be hard to get a new no doc mortgage approved, or to get a current on refinanced.
Some self-employed people take a large number of tax write offs, which can in some cases make their net income some years very low. Without proof that you have income on a tax return, it’s harder for banks to predict your ability to repay the loan.
So what are you supposed to do to get a house if you do not have tax returns available? Despite what some people think, there still are some ‘no doc’ mortgage loans on the market. Getting one is of course trickier than a decade ago, but with some work, you may be able to get the green light on a mortgage loan without tax returns.
More About No Doc Loans
No doc loans may also be known now as stated income or low doc loans. They are made for those who do not have tax returns or other typical documents for getting a no doc mortgage loan. Another common issue is that people want to keep their personal and financial information confidential.
Still, depending upon the lender, you will probably need to show evidence of income, even if you do not have tax returns. No doc loans are a greater risk for lenders; the mortgage crash was in part due to risky no doc loans defaulting.
Without a standard set of income proving documents, you will likely have a higher interest rate than a regular, full doc loan. It is possible that you will have to try several smaller banks to see if anyone will help you. Big banks generally no longer offer no doc or low doc loans.
Without tax returns, some smaller lenders may agree to review your bank statements. As a self-employed person, sometimes your bank statements are a better reflection of your cash flow situation than tax returns.
Without tax records, you can plan on needing to have a very good credit score. Your score will need to be in the mid-700’s to have a chance of getting a low doc or no doc loan in 2017.
If you do not have credit scores that high, you will need to rebuild your credit before you try to get this type of mortgage loan.
Other Types of Low Doc Loan
The above loan with no tax returns is one way to possibly get a loan for the self-employed. Another possibility is a no ratio mortgage. This type of low documentation loan is for those who have a reason for not disclosing their income. They also may have a greatly fluctuating stream of income.
The majority of regular borrowers with docs have to have a debt to income ratio of 43%. A no ratio loan means that the mortgage company will not look at your DTI to make a lending decision.
For qualification purposes, you will need to have an above average credit score for sure. Many lenders will want to see you have cash in the bank and have other assets, such as investment properties. Like any loan with limited documentation, the risk is higher for the lender. Thus your rate will typically be higher. Still, it is a good option for many self-employed people.
How to Get a Low Doc or No Doc Mortgage Loan
Getting a loan with limited or no documentation is harder today, but you can enhance your prospects if you try these three things:
- Put down a lot of money. If you have large income streams that do not necessarily show up on a tax return, you can make a good impression by offering to put down more than 20% on the home you want to buy.
- Have a lot of cash put away in an emergency fund. Without a documented stream of regular income shown on tax returns, it is harder for banks to think that you will be able to pay the loan back. Reassure them by having plenty of money in the bank if your business takes a turn for the worse.
- Pay off debt. You should try to pay down as much of your debt as you can before you try to get a no doc loan. Pay off your credit cards, pay off your student loans, and get rid of the car payments. This will reduce your DTI and let’s lenders know that you can pay more on the mortgage. This reduces their risk.
- Encourage the lender to look at your bank statements to see your cash flow and how you manage your money. Bank statements often are the best indicator of positive cash flow. Tax returns, while helpful, often have a lot of write offs for self-employed people and are not as enlightening.
The Bottom Line
Getting a no doc mortgage loan or mortgage without the typical two years of tax returns is harder than 10 years ago. But the above tips can definitely make it easier.