A no income check mortgage loan is a loan where the lender does not require the borrower to verify their income. These type of loans (sometimes called “liar loans”) used to be readily available. Lenders didn’t require borrowers to supply any documentation about their income. You could be a bus driver making $40,000 a year, but you could say you made $200,000 a year. Lenders would use the $200,000 to qualify you without requiring any documentation. What’s even scarier is that you could potentially be approved for up to 100% financing!
Dodd-Frank Eliminated No Income Check Mortgage Loans
However, in 2010, Congress passed the Dodd-Frank Wall Street Reform and Protection Act, which enacted numerous provisions meant to protect consumers. In practical terms, lenders no longer offered no income check loans.
The “New” No Income Check Mortgage Loans
Starting a few years ago, lenders started to offer several versions of no income check loans. These loans are very different from the loans offered in the past. They require a down payment of at least 20% or more, and there are tougher requirements for credit history and assets. Here are three types of “new” no income check loans:
- bank statement loans
- asset depletion loans
- DSCR loans
What is a bank statement loan?
A bank statement loan is a form of no income check mortgage loan. Instead of analyzing a borrower’s tax returns, the lender analyzes deposits into a borrower’s personal or business bank account. After adding up all the deposits, the lender calculates the average monthly deposit and uses that figure as the income to qualify. The borrower does not need to show tax returns — just their personal or business bank statements for the most recent 12 or 24 months. Note: bank statement loans are typically reserved for borrowers who are self-employed. In mortgage underwriting, a self-employed borrower is a borrower who owns 25% or more of their business.
What is an asset depletion loan?
An asset depletion loan is another type of no income check mortgage loan where the borrower doesn’t need to show tax returns to qualify. Borrowers would show bank statements showing liquid assets. Lenders attribute a certain income (which is usually based on the borrower’s age and an imputed rate of return) to these assets and they use this figure as the income to qualify. A borrower can be either salaried or self-employed or retired to use an asset depletion loan.
What is a DSCR loan?
DSCR stands for Debt Service Coverage Ratio, and it’s a way of evaluating the ability of a property to cover the mortgage debt. These type of loans are used for income producing property (also called investment property). The DSCR analysis is not used for owner occupied property. A borrower can be salaried, self-employed, or retired to use a DSCR loan.
Pros and Cons of the New No Income Check Mortgage Loans
PROS: borrowers can still qualify for a mortgage even if the income on their tax returns is too low
CONS: these types of loans have higher rates than mortgages where the borrower can show enough income to qualify
Which no income check loan helps you save money?
What if you can’t verify enough income to qualify but you don’t want to pay a higher rate? Here’s your best bet: get a co-signor. Co-signor loans are nothing new, but what changed recently is Fannie Mae did away with the requirement for the borrower residing in the house to still qualify on their own. Now, if you have a strong co-signor, you don’t have to have any income at all and you can still be approved without paying a higher interest rate.
If you’d like to talk to an experienced loan officer at Amerifund about the different no income check loans, call (888) 650-7316. Or fill out this form and someone will contact you.
(c) Copyright Eris Saari 2019