No income verification home loans, also known as no documentation or stated loans, is a mortgage in which the borrower is not required to produce documents or information on their assets and liabilities. No verification mortgages were quite popular in the early 2000s and provided loans to anyone that met a minimum credit score.
Because no income verification loans pose a high risk for lenders and borrowers, most lenders have discontinued their use of these types of loans. Stated loans come with much higher interest rates than most other loan types, sometimes twice as high.
There are a few reasons why home buyers consider taking out no documentation loans. Borrowers who are self-employed or have non-traditional credit often run into problems when verifying their income for traditional mortgage loans.Lenders will look for borrowers with a steady source of income, and this may be difficult to prove for those who get income from various sources or at unusual intervals. Most lenders won’t give a mortgage to a buyer that cannot prove steady income.
One of the main factors lenders will consider when qualifying applicants for a mortgage is the applicants debt-to-income ratio (DTI). DTI, sometimes called the back-end ratio, is the sum of all your monthly debt plus the mortgage payment as a percentage of your income. For no income verification loans, lenders use other criteria when qualifying borrowers.
There are some reasons why no income verification loans might not bet the best option for borrowers. Interest rates on no income verification loans are very high and there are other loan options available to those with non-traditional income. Home buyers with liquid assets can sometimes use them to qualify for a loan. There are only a few loan programs that come with no income verification, and the terms might not be what the borrower is looking for.
Lenders will want borrowers who are self-employed to prove their employment with official documents. This means a letter from a CPA with the business name, the address, and your share of the business. Your mortgage broker will also verify that you have had steady employment for the last two years.
Although the lender will not check your income, they will carefully scrutinize your assets to ensure you have enough liquid assets to cover the amount of the loan. The bank will also verify your assets over the last 60 days. Any deposits or withdrawals must be accounted for, and no gift money is allowed in the purchase.
Borrowers who receive stated loans can expect to make a large down payment, around 35%. Loans for over 1 million can require 50% down at closing.
To receive a no income verification loan, you will need to have excellent credit. A credit score of 720 or better is often what is required.
In addition to the above requirements, borrowers should remember that condos and single-family dwellings are typically the only properties that will qualify for a no income verification mortgage. Also, adjustable-rate mortgages are the only types of loans made available for consumers of stated loans.