Are you self-employed or working freelance and thinking about applying for a home loan? The loan acquisition process for non-traditionally employed New Yorkers is often complicated and frustrating. Read this primer on No Income Verification Loans for an easy explanation to the various mortgage options for non-traditionally employed individuals.
Reduced Document Loans or better known as Stated Income, No Income Check Loans,or No Ratio Loans are still available. Some borrowers, especially if they are self employed, find it difficult to get approved for a loan because they can’t prove steady income due to the type of industry they are in or because they collect their income from multiple sources. When self-employed or non-traditionally employed people seek loans, banks typically assess their debt-to-income ratio (DTI) as too low to qualify for a traditional mortgage. DTI is defined as all the monthly debt found on your credit report plus principal, interest, taxes, insurance, and maintenance) That said, banks often use DTI as a means of preventing non-traditionally employed people from getting mortgages.
The solution sometimes is to seek a loan from bank that uses other criteria, besides DTI alone, to qualify. Here’s a list of criteria that banks can use to assess a potential borrower instead of debt-to-income-ratio.
Second Homes vs Investment Property
Occupancy Reduced Document loans are intended for the use of a primary or secondary residence. A secondary residence is considered a vacation home or a home at least 50 miles away from primary residence. Investment properties or income producing properties will not qualify for no income verification loans.
The borrower must provide proof of employment (business license, website, etc) as well as a letter from an accountant stating the business name, address, and % of ownership. Mortgage brokers check to verify if a loan applicant has held continuous employment for at least 2 years in the same business.
Verification of Assets
The bank will do a thorough verification of assets for the prior 60 days. All funds either deposited or withdrawn must be accounted for. No gift funds are allowed in this transaction. All funds must belong to the borrower. Since mortgage brokers aren’t verifying your income, they will look heavily at your assets to insure you have enough reserves. This usually means at least 12 months of mortgage, taxes, insurance, and maintenance payments post closing.
Borrowers must have at least a 35% down payment on a purchase or 35% equity in the property on a refinance. Loan amounts over $1,000,0000 require a 50% down payment equity.
For people seeking no income verification loans, a satisfactory credit history is incredibly important. Typically a 720 credit score is the minimum to qualify for this loan.
Type of Property
Whether a borrower can qualify for a non-income verification loan also depends on what type of property they are looking to buy. Condominiums and single family homes are the only properties eligible for a reduced documentation loan. Co-ops and 2-4 family homes do not qualify.
ARM (Adjustable Rate Mortgages) are currently the only loans types that are granted for no-income verification applicants. They can either have a fixed interest rate period of 5 or 7 yrs. The term of the loan is 30 years.
In conclusion, the no income verification loan offered in today’s market is for the borrower that truly can afford the property they are buying. They will have a substantially equity position, large reserve accounts, and a great history of credit. The banks offering these products are betting that this buyer will be able to repay this loan.