When the housing market tanked, "stated income" loans were much to blame. Often, would-be homeowners applied for these loans simply by stating their income and signing on the dotted line. Spurred by easy money, home prices began to rise at a rate that was unsustainable. When the bubble finally burst, home values took a dive, and these loan offers were nearly impossible to find. Still, there are ways for homeowners who have trouble documenting income to refinance at today's lower rates.
If you don't have W-2 income, some banks will consider what is known as an asset-based mortgage refinance. Instead of proof of employment and salary, this loan is based on credit history and assets. Because there is no standard formula for determining the optimum level of assets a borrower needs to qualify, each lender must make an arbitrary decision as to what it would require. At a minimum, you will need substantial equity in your home, a stellar credit history, cash reserves to cover several months of debt obligations and the patience to shop around for a lender willing to do business.
Enhanced Documentation Techniques
Proving that you have the means to repay your loan is the most important criterion for a lender. Your ability to qualify for refinancing is directly related to the level of detail you can provide about your financial situation. At the very least, plan on producing tax returns for the two most recent years, several months of bank and investment account statements and proof of any other tangible assets. You will also need to provide a complete listing of all debts. Even if everything is solid financially, expect your interest rate to be higher than someone who can show regular W-2 income.
Have Your House in Order
Start by making sure your credit report contains no errors. If it does, correct them before you apply. Reduce balances on credit cards to improve your credit utilization ratio. Having low credit card debt relative to your credit limits is one of the biggest factors influencing your credit score. If possible, organize bank statements to show regular deposits to verify cash flow. If you are self-employed and have signed business contracts ensuring future income, include them in your documentation. If your income is difficult to verify, have an accountant compose a letter explaining why. Finally, ask real estate agents to refer lenders likely to write no-income-verification loans.
If you have an FHA loan and are current on your payments, the U.S. Department of Housing and Urban Development provides a streamlined refinance program that allows you to refinance at a lower rate. This loan has no income verification requirements, and if the new loan amount does not exceed the current loan balance, no appraisal is required. Additionally, closing costs can be included in the new loan if the home is appraised and there is sufficient equity. An FHA loan can be for up to 97.5 percent of the home's value.
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