No Ratio Loans; Why Lenders Need Full Loan Applications (And Why Agents Need To Be Firm)

We have numerous “No Ratio” (No Income Required) loan options now.

These loans require anywhere from 20% to 35% down, and they require no income verification of any kind.

One of our best options is a “No Ratio” 5-Year ARM with rates in the 6% range, requiring 35% down, and a CD with the investor (that buys the loans from us) equal to 12 months of mortgage payments.

Many high-end buyers opt for this loan instead of going through the hassle of having to document income.

Why Lenders Need Full Loan Applications (And Why Agents Need To Be Firm)

“You don’t need an application. My credit score is 800, I have more than enough income, I am putting down 20%, and I don’t want my credit pulled. What’s your rate?”

We hear versions of that statement 10 times per week at a minimum. And often it turns out that those borrowers are … pretty much clueless.

For about 10 years, from about 2012 to 2022, agents were very strict about making their clients get fully pre-approved up front.

But when rates moved higher and business slowed, some agents seemed to get more reluctant to push clients to fill out an application and get pre-approved.

Here are some of the issues we’ve seen with clients who insisted we don’t need a full application:

1. Income was 1099 and not W2, so the borrower made far less than he led us to believe.
2. Credit score is much lower because the borrower was relying on an inaccurate consumer credit scoring model instead of the stricter mortgage scoring model.
3. Borrower had TOO MUCH income to qualify for special financing with “income limits,” e.g., free 2-1 buydown; down payment assistance; and/or special programs for low-income areas.
4. Borrower had tax collections.
5. Borrower co-signed for loans that made it impossible for him to qualify.
6. Borrower had a $1,700 truck payment (surprisingly common) that made it impossible for him to qualify for what he wanted.
7. Borrower had a recent $50,000 deposit that he could not explain (down payment was borrowed or was an unseasoned “gift”).
8. Borrower’s income was mostly commissions, but he just started the job, and there was no “history” (so we could not use it).
9. Borrower’s income was 50% bonus income, but there was only a one-year history, and we could not use it.
10. Borrower had ownership in side businesses, LLCs, and/or partnerships with losses.

Note: There are often workarounds for most of the above issues, but they sometimes don’t work, and we need to know about the issues upfront still.

One More Reason to Get Pre-approved

Pre-approvals can take a day or two if a file is complex. So, if buyers see a house they want, they could lose out waiting for their pre-approval (unless their file is squeaky clean).

Lastly, pre-approvals are free and fairly easy for borrowers

Yes, a tough file can take a lender 4 hours to approve, but for borrowers, an approval simply involves filling out an online form and uploading readily available documents and/or bank account info.