Nesties hoping to get into a home of their own have a variety of loans available to them. Although it's much more difficult to get than it used to be, one such mortgage option is the no-income-verification loan. Just as it sounds, you don't have to verify your income with the lender, but you do have to correctly estimate your monthly pay to protect yourself from getting in over your head with a monthly nut you may not be able to afford.
No-income-verification mortgage loans are also known as no-doc or stated income loans. A borrower states his income on the mortgage application and does not have to provide pay stubs, W-2s or 1099s to back it up. He also does not provide information on any assets or liabilities he may have. The lender then uses this information to originate the loan. Because there is an added risk to the lender, these loans may have higher interest rates or require a larger down payment.
What You Do Need
A borrower hoping to obtain a no-income verification loan doesn't get off completely document-free; he may need to show income tax records for the past two years or a business license or profit and loss statement if he is self-employed. Salaried employees must have a history of continuous employment with the same company or in the same line of work for at least two years. The borrower must also have stellar credit to be considered for this loan option, which is helpful to the lender as a credit score is considered "hard" documentation. A borrower who already has a home and who wants to refinance with a no-income-verification loan may have an easier time with both excellent credit and equity in the home.
No-document loans are not offered by many lenders, especially in light of the subprime mortgage problems of the early 2000s. This type of loan was originally best suited for self-employed borrowers with seasonable income that may be hard to verify or otherwise document or those who do not have pay stubs or W-2 wage documentation. Due to a higher risk of default, many lenders have now removed no-income-verification loans as mortgage loan options.
In the past, no-income-verification loans allowed many borrowers with marginal credit and questionable income to qualify for a mortgage loan. By exaggerating her income, the borrower could qualify for a home loan that was simply not affordable, leading to a higher risk of default.
- "Mortgage Loan Processing"; Alex Johnson; 2009
- "National Residential Mortgage Loan Originator"; Debra Killian, et al."; 2011
- "Rent vs Own: A Real Estate Reality Check for Navigating Booms, Busts, and Bad Advice"; Jane Hodges; 2012