More and more lenders are offering no-doc mortgage options to help borrowers with tricky income situations with loans to buy or refinance homes. Also called no-income verification mortgage or stated income loan, a no-doc mortgage may help you close your home loan faster, especially if you have complicated tax returns.
Today’s no-income-verification mortgages come with extra consumer protections, making them a viable alternative to traditional home loans.
A no-income-verification mortgage is a home loan that doesn’t require the documentation that standard loans typically require like pay stubs, W2s or tax returns. However, don’t let the name fool you: Some paperwork is required to get a no-doc loan. The lender accepts other items, such as bank statements, as proof you can repay the mortgage.
Modern-day no-doc mortgages are different from the stated-income loans that were popular before the housing crash of 2007 and 2008. Designed primarily for self-employed borrowers, stated income loans used to allow applicants to essentially “state” whatever income was needed to qualify. Now lenders have to prove that borrowers taking out no-doc mortgages have the resources to pay the loans back.
No-document mortgage lenders offer a variety of no-doc and low-doc mortgage products. Below is a breakdown of the most common programs and who can benefit from them.
Lenders collect and review the deposits on 12- to 24-months’ worth of your personal or business bank statements to calculate your qualifying income for a loan.
Who they’re best for: Consumers who receive deposits on a regular basis that can be easily tracked on their bank statements.
These are often called asset-depletion loans, and lenders qualify you based on up to 100% of your liquid asset value divided by a set loan term. For example, someone with a $1 million asset could apply for a 20-year fixed asset-depletion loan. The qualifying income would be $50,000 per year ($1 million divided by a 20-year term).
Who they’re best for: High-net-worth borrowers with funds in accounts that can be easily converted to cash are typically a good match for asset-based mortgages. Institutional banks may offer them to customers with large deposit balances.
Current no-income, no-asset (NINA) loans are only available if you’re buying an investment property that produces enough income to cover the monthly mortgage payment. They may also be called debt-service ratio loans and don’t require income or asset documents if the property’s monthly rents are the same as or slightly higher than the total monthly payment.
Who they’re best for: Real estate investors with cash for high down payments who want to quickly build a portfolio of investment properties.
The term “no-doc mortgage” doesn’t mean lenders make loans to just anyone. In fact, no-documentation mortgage lenders must make a good-faith effort to show you can repay the loans they offer. That means they’ll ask for other proof you can afford the payments.
Below are four common requirements for no-income-verification mortgages.
Before you apply for a no-doc mortgage, see if you meet the minimum mortgage requirements for the most common standard mortgage programs. Borrowers often choose conventional loans or FHA loans (backed by the Federal Housing Administration) because of the low down payment requirements.
Conventional loans follow guidelines set by Fannie Mae and Freddie Mac. FHA loans are more lenient than conventional loans. No-doc mortgages typically require higher down payment and credit scores than conventional and FHA loans.
The table below gives you a side-by-side comparison of standard requirements for each loan type.
| Loan requirement | No-doc mortgages | FHA loans | Conventional loans |
|---|---|---|---|
| Down payment | 30% | 3.5% | 3% |
| Credit score | 700 | 580 | 620 |
| Income documents required? | No | Yes | Yes |
| Interest rates | Typically higher than FHA and conventional mortgages | Typically lower than no-doc mortgages | Typically lower than no-doc mortgages |
You don’t need to provide tax or income documents
You may qualify based only on your assets
You may be approved even if your income recently dropped
You’ll make a higher down payment
You’ll usually pay a higher interest rate
You’ll need higher credit scores than standard loan programs
You should consider a no-income verification loan if you can’t easily verify your monthly earnings, have complex tax returns or just don’t want the hassle of providing a ton of earnings documentation.
Because self-employed income isn’t guaranteed by an hourly or salaried wage, lenders take extra care to verify a borrower’s earnings history. They focus on the stability of the income, how financially sound the business is and even the demand for the type of service or product that the company offers.
You may want to consider a no-income-verification loan in the following scenarios:
You may run across any of the following variations of no-doc mortgages including:
No-income-verification mortgage programs are available to qualified borrowers to refinance government-backed mortgages. Homeowners who have paid on time over the past year and have an FHA loan, a U.S. Department of Veterans Affairs (VA) loan or a U.S. Department of Agriculture (USDA) loan may be eligible for one of these reduced-document refinance loans. An added bonus of these programs: You won’t need a home appraisal.
Modern day no-documentation loans are safer than their stated-income predecessors, as no-documentation mortgage lenders must follow federal laws to verify you can repay the loan with proof of cash flow or assets. Still, every mortgage comes with the risk that you could lose your home if you can’t afford the payments.
Stated-income loans were meant to help people with varying self-employment income buy houses. However, lenders took advantage of the easy qualification process to speed up approvals and close more loans.
When the housing market crashed and the U.S. entered the Great Recession, many homeowners lost jobs or became underwater on their mortgages. Many defaulted on their loans and lost their homes to foreclosure.
To protect consumers from future loan abuse, the Consumer Financial Protection Bureau enforces ability-to-repay laws to make qualified mortgages. Qualified mortgages must meet minimum debt-to-income (DTI) ratio requirements with regular income documentation. This ensures that you have enough monthly income to pay all of your debts plus your new mortgage payment.
