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.
Non-conventional mortgage loans are basically government loans: VA (Veterans Administration), FHA (Federal Housing Administration) and FmHA (Farm Housing Agency)—now RHS Rural Housing Service—loans. This article will discuss two specific non-conventional programs in more detail below:
1. VA
2. FHA
Ginnie Mae, the Government National Mortgage Association, is the agency responsible for securitizing much these non-conventional, government loans. All other types of primary mortgage loans provided by private lenders and not guaranteed by the government are considered conventional loans.
Contrary to what many people may believe, the VA and FHA normally do not fund loans.
These two governmental agencies only guarantee certain portions of a mortgage loan. But these are powerful and effective guarantees. These guarantees are reassuring to lenders in that they lower the lender’s overall risk exposure.
