More and more lenders are offering No Income Documentation mortgage options to help borrowers with tricky income situations with loans to buy or refinance homes. Also called no-income verification mortgage or stated income loan, a no-doc mortgage may help you close your home loan faster, especially if you have complicated tax returns.
Today’s no-income-verification mortgages come with extra consumer protections, making them a viable alternative to traditional home loans.
What is a No Income documentation mortgage?
A no-income-verification mortgage is a home loan that doesn’t require the documentation that standard loans typically require like pay stubs, W2s or tax returns. However, don’t let the name fool you: Some paperwork is required to get a no-doc loan. The lender accepts other items, such as bank statements, as proof you can repay the mortgage.
Modern-day no-doc mortgages are different from the stated-income loans that were popular before the housing crash of 2007 and 2008. Designed primarily for self-employed borrowers, stated income loans used to allow applicants to essentially “state” whatever income was needed to qualify. Now lenders have to prove that borrowers taking out no-doc mortgages have the resources to pay the loans back.
How No Income mortgages work, and who they work for
No-document mortgage lenders offer a variety of no-doc and low-doc mortgage products. Below is a breakdown of the most common programs and who can benefit from them.
- BANK STATEMENT MORTGAGES – Lenders collect and review the deposits on 12- to 24-months’ worth of your personal or business bank statements to calculate your qualifying income for a loan.
Who they’re best for: Consumers who receive deposits on a regular basis that can be easily tracked on their bank statements.
- ASSET-BASED MORTGAGES – These are often called asset-depletion loans, and lenders qualify you based on up to 100% of your liquid asset value divided by a set loan term. For example, someone with a $1 million asset could apply for a 20-year fixed asset-depletion loan. The qualifying income would be $50,000 per year ($1 million divided by a 20-year term).
Who they’re best for. High-net-worth borrowers with funds in accounts that can be easily converted to cash are typically a good match for asset-based mortgages. Institutional banks may offer them to customers with large deposit balances.
- NO-INCOME, NO ASSET LOANS – Current no-income, no-asset (NINA) loans are only available if you’re buying an investment property that produces enough income to cover the monthly mortgage payment. They may also be called debt-service ratio loans and don’t require income or asset documents if the property’s monthly rents are the same as or slightly higher than the total monthly payment.
Who they’re best for. Real estate investors with cash for high down payments who want to quickly build a portfolio of investment properties.
No Income Documentation mortgage requirements vs. other types of mortgages
Before you apply for a no-doc mortgage, see if you meet the minimum mortgage requirements for the most common standard mortgage programs. Borrowers often choose conventional or FHA loans (backed by the Federal Housing Administration) because of the low down payment requirements.
No-doc mortgages typically require higher down payment and credit scores than conventional and FHA loans.
The table below gives you a side-by-side comparison of standard requirements for each loan type.
| Loan requirement | No-doc mortgages | FHA loans | Conventional loans |
|---|---|---|---|
| Down payment | 20% | 3.5% | 3% |
| Credit score | 640 | 580 | 620 |
| Income documents required? | No | Yes | Yes |
| Interest rates | Typically higher than FHA and conventional mortgages | Typically lower than no-doc mortgages | Typically lower than no-doc mortgages |
How do I get a No Income Documentation mortgage?
The term “no-doc mortgage” doesn’t mean lenders make loans to just anyone. In fact, no-documentation mortgage lenders must make a good-faith effort to show you can repay the loans they offer. That means they’ll ask for other proof you can afford the payments.
Below are four common requirements for no-income-verification mortgages.
- HAVE GOOD CREDIT. No-income-verification mortgage programs generally require a higher credit score than a regular loan with income documents.
- MAKE A LARGE DOWN PAYMENT. The down payment minimum on no-doc mortgage loans usually starts at 20%.
- EXPECT HIGHER INTEREST RATES. Lenders may charge higher rates than you’d pay for a regular mortgage to cover the higher risk of forgoing documentation.
- PROVE YOU CAN REPAY THE LOAN. Whether it’s bank statement deposits, rent on an investment property you’re buying or a large stockpile of assets, lenders need proof you have the resources to make monthly payments on your loan.
Pros and cons of a No Income Documentation mortgage
When should you get a No Income Documentation mortgage?
You should consider a no-income verification loan if you can’t easily verify your monthly earnings, have complex tax returns or just don’t want the hassle of providing a ton of earnings documentation.
Because self-employed income isn’t guaranteed by an hourly or salaried wage, lenders take extra care to verify a borrower’s earnings history. They focus on the stability of the income, how financially sound the business is and even the demand for the type of service or product that the company offers.
You may want to consider a no-income-verification loan in the following scenarios:
- You had business expense write-offs last year. Large expense write-offs like equipment or commercial property purchases may push your net income down. Lenders evaluate a two-year history when averaging self-employed income. The low year of earnings due to the write-off could affect your approval chances with a standard mortgage.
- Your income declined recently. A drop in income may set off lender alarm bells with traditional lenders, especially if you’re self-employed. A no-doc home loan program allows you to get a mortgage without tax returns that show declining income.
- You file multiple tax returns. The more streams of income you earn, the more complicated your tax returns are likely to be. As a result, a no-tax-return mortgage might be a viable alternative.
- You have an irregular income. Freelance workers and seasonal contractors may get lump sums of money a few times a year. A no-documentation mortgage lender may be able to help if a traditional lender can’t figure out your income.
- You’re a real estate investor. Ability-to-repay rules apply only to mortgages for primary residences and second homes. Investors might qualify for a no-doc home loan program on the basis of projected rent for the property they’re buying without any other asset or income documentation.
- You have a high net worth but no job. If working is no longer necessary because you’ve reached a high net worth, a no-doc mortgage loan may allow you to convert your assets into qualifying income.
Stated-income loans, NINJA loans and other types of no-doc mortgages
You may run across any of the following variations of no-doc mortgages including:
- Stated-income loans. Stated-income mortgages don’t use a W-2, 1099, bank statement or other source to verify the applicant’s income.
- SISA. Stated-income, stated-asset (SISA) loans are made without verification of a borrower’s income or assets.
- SIVA. Stated-income, verified-assets (SIVA) loans allow lenders to accept your assets and your word about how much you earn as the basis for approval. They’re often called bank statement loans.
- NIVA. No-income, verified-assets (NIVA) loans are similar to SIVA loans, except income is not added to the application. Instead, lenders may review assets such as retirement and savings accounts.
- NINA. NINA loans may be an option for real estate investors buying rental properties. This type of no-doc mortgage requires enough rental income to cover the new mortgage payment.
- NINJA loans. No-income, no-job, no-asset (NINJA) mortgages don’t require lenders to verify income, assets or employment. Essentially, with a NINJA loan, the lender takes the borrower’s word that the loan application is accurate.
Are you eligible for a government-backed, no-doc refinance mortgage?
No-income-verification mortgage programs are available to qualified borrowers to refinance government-backed mortgages. Homeowners who have paid on time over the past year and have a loan backed by the FHA, the U.S. Department of Veterans Affairs (VA) or the U.S. Department of Agriculture (USDA) may be eligible for one of these reduced-document refinance loans. An added bonus of these programs: You won’t need a home appraisal.
- FHA streamline. Homeowners with an FHA loan may be eligible to get a better interest rate or better terms without any income documents through the FHA streamline refinance program. One drawback, however, is that closing costs can’t be rolled into the loan amount unless you agree to a higher interest rate.
- VA IRRRL. Military borrowers may be able to get a lower mortgage rate with the VA’s interest rate reduction refinance loan (IRRRL) without providing earnings paperwork. The loan amount can be increased to cover closing costs.
- USDA streamlined assist-refinance loan. If you bought your rural home with a no-down-payment USDA loan, you might be able to reduce your rate with the USDA streamlined-assist refinance option. No income docs are needed, and you can add the closing costs to your loan amount.
Are No Income Documentation loans safe?
Modern day no-documentation loans are safer than their stated-income predecessors, as no-documentation mortgage lenders must follow federal laws to verify you can repay the loan with proof of cash flow or assets. Still, every mortgage comes with the risk that you could lose your home if you can’t afford the payments.
Stated-income loans were meant to help people with varying self-employment income buy houses. However, lenders took advantage of the easy qualification process to speed up approvals and close more loans.
When the housing market crashed and the U.S. entered the Great Recession, many homeowners lost jobs or became underwater on their mortgages. Many defaulted on their loans and lost their homes to foreclosure.
THINGS TO KNOW
To protect consumers from future loan abuse, the Consumer Financial Protection Bureau enforces ability-to-repay laws to make qualified mortgages. Qualified mortgages must meet minimum debt-to-income (DTI) ratio requirements with regular income documentation. This ensures that you have enough monthly income to pay all of your debts plus your new mortgage payment.
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