The No Income Verification loan is ideal for self-employed applicants and for borrowers who have unstable income, such as commissioned employees, recently employed borrowers and applicants who receive a large amount of cash (undocumented) income.
However, the NIV program is also used by salaried borrowers who cannot qualify for a loan, based on their documented income.
The NIV options is available—at a cost (see below)—to borrowers with a wide range of credit and employment situations. Thus, applicants with D-credit in the middle of a bankruptcy or foreclosure can still qualify for a No Income Verification loan.
A note of caution: just becase you can qualify for a no income verification loan doesn’t mean you should go through with financing. The no income verification programs allows borrowers unable to document sufficient income to obain financing. But, applicants and borrowers should not overlook the question of whether he or she can actually afford the loan. The whole purpose of income qualification is to project the applicant’s ability to repay the loan. You may be qualified to receive a $500,000 NIV loan, but if you’re only earning a $30,000 annual salary (with no other income), then this loan is probably a bad idea.
Stated Income programs accepts whatever income is stated by the borrower on the application—within reason. Some people may find this difficult to believe: but it is true. This is the essential No Income Verification program. The applicant must indicate a qualified income on the application; and the lender will use that income figure to underwrite the borrower’s income qualification.
The lender will still perform a Debt-to-Income (DTI) qualification, but the income used will be the income stated. Again, the lender will still verify the borrower’s employment or self- employment, but no income verification or documentation will be performed.
Although the No Income Verification loan has taken any many shades of interpretations and different titles, most of the NIV programs available today can be categorized according to four classes:
● Lite Documentation
● Stated Income
● No Ratio
● No Documentation
Lite documentation
The Lite Documentation is useful for borrowers who cannot document their income through standard means, i.e., pay stubs and tax returns. With Lite Doc programs, the borrower provides six to 12 months of bank statements.
The lender’s underwriter will then track the deposits into that account to determine an average monthly revenue. As you can see, this is not a full NIV program—but it is often cheaper than full NIV loans.
The Lite documentation program is more of a compromise between full documentation and No documentation programs. It is sometimes called Alternative Documentation program.
Various lenders have different interpretations and application of the No Income Verification (NIV) option. The basic element is that the borrower’s income, as reflected on the application, does not require verification. The No Income Verification (NIV) loan merely accepts the applicant’s stated claim about his or her income—within reason.
Although the NIV program will not verify the applicant’s income, it will require that the stated income makes sense: it is acceptable for a doctor, lawyer or other professional to state that he or she makes $100,000 a year; however, it is not acceptable for a janitor or clerical employee to state the same thing.
Most NIV loans will still insist on verifying employment, especially if the borrower is not self-employed. If the borrower is self-employed, the self-employment must be documented with a business license, past receipts and/or advertisements. Some lenders only offer NIV loans to self-employed borrowers.
In fact, the NIV loan was initially developed primarily for self-employed borrowers, who had a difficult time documenting their income.
Until recently, practically all NIV programs were non-conforming loans. In recent years, however, some conforming programs have started to offer a limited NIV option for borrowers with very good credit. The interest rates on such conforming NIV programs are much better than standard non-conforming NIV loans.
