No-income verification mortgages, also called stated-income mortgages, allow applicants to qualify using non-standard income documentation. While most mortgage lenders ask for your tax returns, no-income verification mortgages instead consider other factors such as available assets, home equity and overall cash flow. This makes it easier to get a home loan if you're self-employed or rely on seasonal commissions.
- What is a No-Income Verification Mortgage?
- History of No-Income Verification Mortgages
- Are No-Income or Limited Verification Mortgages Still Available?
- Is a No-Income Verification or Limited Verification Mortgage Right for Me?
- Where Can I Get a No-Income Verification Mortgage Loan?
What is a No-Income Verification Mortgage?
In no-income verification mortgages, lenders don't require applicants to prove or document a source of income. Other names for such mortgages include "stated-income" loans and "no-doc" or "alt-doc" loans, but all of them fall under the same umbrella definition with only a few differences. There are four main types of no-income verification mortgage loans, each with its own level of requirements.
- SISA - stated income, stated assets
- SIVA - stated income, verified assets
- NIVA - no income verification, verified assets
- NINA - no income verification, no asset verification
Stated Income, Stated Assets
A SISA loan can be useful if you have significant income and assets that are difficult to document. When you apply for a SISA loan, the lender agrees to accept the income and asset figures you provide, with no documentation needed. This can be helpful for small business owners who keep all their assets in a business account and don't document their personal compensation with pay stubs, W-2 forms or 1099 forms. In such cases, bank statements for 12 to 24 months can be used to calculate the business's monthly cash flow in place of other documentation.
Stated Income, Verified Assets
This type of loan is most useful if a big part of your income is hard to document, but you have verifiable assets on hand. The lender agrees to accept your income figure and verify your available assets. One example where SIVA would be appropriate is for someone whose income is based on tips or gratuities but who has a personal bank account in their own name.
No Income, Verified Assets
A no-income, verified assets loan is meant for applicants who have verifiable assets but income that cannot be documented. In this case, the lender verifies your assets and does not take your income into consideration. A retiree who draws income from their retirement accounts may not have enough verifiable income, but their assets can be documented, so they would benefit from using a NIVA loan.
No Income, No Assets
With the fewest requirements of all, NINA loans are best for applicants who cannot provide documents for either income or assets. NINA lenders base approval solely on the collateral and other non-income factors. Someone who is employed by a foreign company and holds their assets in a foreign bank may not be able to provide any documentation acceptable to U.S. lenders. Using a NINA loan in this case might allow the borrower to skip document translation and international asset transfers.
History of No-Income Verification Mortgages
No-income verification loans became very popular in the years leading up to the housing market crash in 2008. Their growth was fueled by relaxed underwriting standards and rising real estate prices which led consumers to believe that homes would continue to gain value indefinitely. Once it became clear that this wasn't the case, no-income loans fell out of favor among lenders and investors.
Originally, these loans were meant to accommodate people whose income was complicated by seasonality, self-employment or independent contracting. During the run-up to the crisis, they instead became a shortcut for lenders to push unqualified borrowers through the mortgage process.
As housing defaults skyrocketed and government regulation tightened, these loan programs all but disappeared. Lenders were required to document the borrower’s ability to repay the loan, and investors had little interest in buying mortgage-backed securities for loans that Fannie Mae and Freddie Mac would not endorse.
Are No-Income Verification or Limited Income Verification Mortgages Still Available?
These types of loans are still available from lenders who offer portfolio lending options and aren't held to qualified mortgage rules by government agencies like Fannie Mae or Freddie Mac. No-income lenders use private equity from investors to create these product offerings. These include direct lenders like Chase Bank, Citibank and U.S. Bank; wholesale lenders like Stearns, JMAC and Newfi; and even large financial investment firms like Charles Schwab.
Most other banks and credit unions don’t offer these types of loans because it's difficult to package and sell them on to investors in the secondary market. Given that the only alternative is to keep such mortgages in-house, few lenders are willing to make that kind of capital commitment. The added risk presented by no-income mortgages is just one more reason the majority of lenders steer clear of offering them.
Is a No-Income Verification or Limited Verification Mortgage Right for You?
No-income and limited-income verification mortgages are worth exploring if you're self-employed, have seasonal income streams, or otherwise have trouble qualifying for a conventional mortgage loan. All of these scenarios can make it complicated to document your income, which makes the simplicity of a no-verification loan ideal.
However, consumers with insufficient income should not use these loans as a way to disguise insufficient financial standing. You should only apply for a no-income verification mortgage if you can actually afford to make payments. These loans should be seen as a solution for cutting down paperwork, not for avoiding the common-sense question of affordability.
|Verification||Interest Rates||Equity Stake||Credit Score Requirements|
|Limited Documentation Loans||1% - 3% above market rates||20% or greater||700+|
|No-Documentation Loans||As much as 5% above market rates||20% or greater||700+|
|Conventional Loans||Market rates||As little as 3% - 5%||620+|
In addition, there are significant drawbacks to no-verification loans. Their interest rates are much higher than rates on conventional loans, and they also put heavy emphasis on upfront commitment. This often leads to minimum down payments of 20% to 40% or higher. The minimum credit scores for these programs are also higher than usual.
Where Can I Get a No-Income Verification Mortgage Loan?
You can begin researching your options for these types of loans with a portfolio lender or a mortgage broker who works with portfolio lenders on your behalf. If you have retirement or investment accounts with a major financial firm, look into its mortgage lending options offered to current clients as well.
Each lender determines its own qualifying criteria based on its tolerance for risk and the requirements of its investors. However, lenders will often require higher credit scores, larger down payments and lower loan-to-value ratios than similar full-documentation loans.
Instead of tax returns, the lender may request 12 months of bank statements to determine your monthly cash flow. Rather than review your asset accounts, the lender may request two appraisals to confirm the value of the property and your equity stake in it. In general, lenders will be looking for compensating factors to stand in for the information they aren’t gathering in the form of pay stubs, tax returns or asset statements.