One of the casualties of the mortgage meltdown of 2007 and 2008 was that most no income verification loans no longer were offered. While getting a no income verification mortgage loan today is still challenging, there are more options available than a few years ago. Rumors around the lending circles are swirling, as many believe guidelines will be changed to accommodate more stated income mortgage programs for self-employed borrowers.
What Are No Income Verification Loans?
Before the financial crisis, there were many mortgage lenders who issued ‘no income verification’ and ‘no documentation’ loans that were not based upon one’s income. The main qualifier for a no income verification mortgage is your credit history.
If you were able to show a steady history of bill and credit account payments, you could often get a loan without income verification. This type of loan was very popular for people who were self-employed and operated on a cash only basis. These types of workers do not receive regular paychecks, nor do they have W-2’s from a permanent employer.
The problem with these no income verified loans was that many of the homeowners lost their work or jobs, and they defaulted on the loans. Home values also plunged, and many banks were dealing with a massive number of defaults.
Today, there are fewer limited or no doc loans such as these, but you may be able to find a no income verification mortgage that requires limited documentation if you have a credit score of at least 700. In such a case, you will have to pay an interest rate that is at least 2-3 points above current rates. Most ‘no income verification’ loans today are still obtained by borrowers who do not have a regular job, and get their income as fully independent contractors. With the surge in small business owners across the country, the demand for a HELOC with no income documentation is soaring.
How to Get a No Income Verification Loan
If you are one of the more than nine million self-employed in the US today who makes a decent income, you may be able to qualify for a home loan with limited documentation of your income. However, in the year or two leading up to getting a no income mortgage, you may need to make some adjustments in how you are reporting your income to the federal government.
Many self-employed people take a lot of business deductions that results in them having little taxable income at the end of the year. The problem is that you are reporting little income on your tax return. That is one of the only ways that lenders today will be able to get an idea of what your income is.
Most lending programs will require that you show at least one or two years of tax returns. You should amend your tax returns for the last two years to show that you have a decent income so you can get a mortgage, even if you end up paying more in taxes.
Another Way – Stated Income Loans
As the housing market has improved since 2012, some high risk mortgage lenders have started to relax their rules so that more self-employed people can get qualified for no doc loans. These lenders do not look for pay stubs, W-2s or even tax returns to qualify your application.
Some of these lenders are smaller banks and will base your application upon your credit score and a stable history of working. Also, you may need to put more than 20% down on your home.
There is still a big demand for no income check home equity loans as small business owners often need quick access to cash. No income home equity loans and HELOCs are an easy way for self-employed borrowers to get access to cash without having to dip into personal savings or paying super high interest rates from unsecured loans.
Some of these lenders are now qualifying the buyer by an analysis of their bank statements rather than tax returns. Some financial experts claim that a bank statement analysis for the last two years is a more reliable way of gauging how likely you are to pay back the loan. These lenders may ask that you provide at least a year’s worth of bank statements so that they can do their cash flow analysis of your finances.
Some lenders may still verify your employment and could require you to still provide tax returns, however. Some lenders may also require you to provide a letter from your CPA that states exactly what your income was for a certain period. Read more about how to get a stated income mortgage.
If you are a self-employed borrower and you want to get a no income verification or stated income loan, financial experts advise that you spend more time getting ready to get your home loan. The easiest way to prepare is to write off fewer of your expenses in the two years before you apply. It also is smart to clean up your banking so that your business does not in any way commingle with your personal finances.
For instance, you should pay for a PC for your business with a business credit card and not a personal one. Some lenders may decide to not count the debt against your personal DTI because it is the property of the business.
If you are still struggling to qualify for a no doc home loan, you also can get a co-signer on your loan so that you do not have any problem qualifying. Otherwise, you may want to wait until more mortgage loans are available that can be based just upon your cash flow that is shown on your bank statements.