One of our best agents, who gets my blog but clearly does not read it 😊, asked yesterday if we have Home Equity Lines (HELOCS) for self-employed borrowers who cannot document income with tax returns or paystubs.
Our answer of course was a resounding “yes.”
More importantly though, it made for great blog fodder, as I want to set out what “no income verification” means in today’s mortgage world.
No Income Verification Options
1. Algorithm/AI/Instant Underwrites.
We have a HELOC that requires NO tax returns or paystubs, and that grants approvals (or denials) in a matter of minutes with no paperwork other than an online application. It uses 2,500 data points for underwriting, and it automatically accesses bank accounts for deposit histories.
This HELOC is by far our most popular option now for ALL borrowers (self-employed and W2’d) because of its speed and simplicity. I’ve blogged about it many times now, and it is what first mortgage lending will look like when regulators realize these loans are actually lower risk than traditionally underwritten loans.
2. No Ratio Loans.
These are actually “no income verification” loans and are called “no ratio” loans because they require no debt ratio calculations. They do, however, require good credit, proof of assets, substantial down payments (20% to 35%, depending on the program), and higher rates (often in the 9% range).
Note: These loans are a very far cry from the “liar loans” (stated income/stated asset loans) in the pre-2008 era because the down payment requirements are far higher, credit requirements are stricter, and assets need to be verified.
3. Asset Based Loans.
As the name implies, these loans require substantial liquid asset verifications in lieu of income verifications. The assets must be liquid such as cash, stocks, bonds, CDs, etc. Non-liquid assets like real estate, non-public stock, and/or business equity do not work. Assets can also be in retirement accounts. Most of these programs simply amortize assets over a fixed period of months ranging from 60 to 84 to come up with an income figure, but some programs only require enough assets to pay off the loan or to make a fixed number of payments (the latter have higher rates or down payment requirements though).
4. DSCR Loans.
I’ve blogged about these loans many times too. These loans are for investors only and use only rental income for “income verification” purposes. The better the housing payment coverage by the rent, the lower the rate. Ideally, lenders like to see rental income to exceed the housing payment (for the best rate), but that is not a requirement.
5. Bank Statement Loans.
These are only “no income verification loans” in the sense that they do not require tax returns, W2s, or paystubs. They do, however, still “verify” income by adding up deposits into a borrower’s bank account over a fixed period of months (12 to 24), and then dividing the total by the number of months analyzed. Large one-time deposits must be explained or not included in the income calculation – so no, borrowers cannot game the income analysis with large deposits.
