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.
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.
One of the most common non-conforming loan programs is the No Income Verification (NIV) loan. A non-conforming loan refers to any loans that are sold to the secondary mortgage market, but NOT through Fannie Mae, Freddie Mac or Ginnie Mae. Non-conforming loans are sold through more expensive private conduits because they do not satisfy or “conform” to the guidelines established by Fannie Mae, Freddie Mac and Ginnie Mae.
The NIV program allows the borrower to qualify for mortgage financing, regardless of their income.