When applying for a mortgage, typically you are required to submit a whole package of documents to be able to show your income history and pay, as well as assets. However, there are a few loan programs that allow for very limited documentation and stated income. This means that the income you state is the income that will be used for the application and qualification, without submitting pay stubs, tax returns, and/or 1099’s/W2’s.
There are a few different loan programs that operate like this. However, most are not consumer purpose loans. These loan types are best geared for investment properties, real estate investors, and self-employed individuals.
For a No Doc Mortgage,” there will still be some documents to submit, and paperwork. These will include IDs to verify identity, trust paperwork if it is in a trust, mortgage statements, homeowner’s insurance if available, and signed disclosures and forms throughout the process. However, income documentation will not typically be requested.
The loan programs that we offer, at Independent Home Finance Inc., that are considered No Doc Mortgages, are hard money loans and select DSCR loan options. Hard money loans, also known as private equity or trust deed loans, are a streamlined stated income loan program. These are temporary financing loans, similar to bridge loans, that are best suited for short term financing needs. This can include remodeling an investment property, obtaining funds as a down payment on an investment property, or utilizing funds to improve cash flow for investment or business purposes. A DSCR loan is exclusively for an investment property. Instead of utilizing personal income, the qualifying figures for DSCR will be dependent on the market rent values. An appraisal on the property, with the market rent amount listed, will be used to obtain the qualifying information. The market rent must cover the monthly payment on the loan, so this can also be a barrier for individuals who are looking to remodel a property and expect a significant difference in cash flow for the property. In such circumstances, a hard money loan may be a better temporary financing option; to then refinance into a DSCR loan once remodels are completed.
Both programs are excellent options for investment properties and real estate investors, who may have difficulties qualifying for a conventional loan. However, in select circumstances, a hard money loan may be possible to do on a primary residence.
This leads us to self-employed individuals, who are looking for funds for their business. If you are applying for a hard money loan on a primary residence, it is going to be dependent on the purpose and state in which the property is. Hard money loans cannot always be done on a primary residence, depending on the state and the reason for pulling cash out of the equity. It is important to speak with a loan officer, to see if you will be able to qualify based on your state and purpose for acquiring funds. Typical acceptable purposes, for doing a stated income/no doc hard money loan on a primary residence, include:
- Starting a business, as a self-employed individual.
- Using funds to purchase equipment for a business.
- Growing a business, such as hiring employees and using funds for marketing.
- Pursuing an investment opportunity with funds, such as purchasing a rental property.
- Using funds to improve cash flow for a business or paying off business debts.
There are many different acceptable business purpose reasons for doing a stated income/no doc mortgage on a primary residence, beyond this list. In turn, there are also many circumstances where a stated income/no doc mortgage cannot be done on a primary residence, such as:
- Pulling cash out to do remodels on a primary residence, out of personal necessity or preference.
- No self-employment, or interest in a business/business venture.
- Pulling cash out, to invest in the stock market.
- Pulling cash out to pay off a friend or a personal debt owed.
- Refinancing just to change terms on the mortgage.
- Refinancing to bail out a foreclosure or late dues on the mortgage.
However, for an investment property, some of the above are acceptable reasons for a stated income loan, such as:
- Pulling cash out to do remodels on an investment property, to improve market rent values.
- Pulling cash out, to pay back taxes or HOA dues on an investment property.
- Refinancing to change terms on an investment property mortgage, such as paying off a loan that is coming due soon.
Beyond the reason for applying for a stated income loan, one other important aspect to no doc mortgages is the loan to value ratios. For most no doc mortgages, and stated income loans, the acceptable loan to value ratios are typically a lot lower than full doc mortgages. This means that the amount of financing on the property cannot exceed a certain percentage of the value.
Loan to value can be calculated by taking all of the existing liens plus the cash out amount needed, and dividing it by the estimated value of the property. This should give you a percentage. Each program will have different maximum loan to value ratios, but a loan officer will help you figure out the best loan program for the loan to value you are going to be at.
For stated income/no doc mortgages, it is important to have a loan officer that is knowledgeable about these programs and can help explain all the terms and conditions to you. With every mortgage, there are pros and cons, and having a loan officer that will outline both will help you make the best decision for you. At Independent Home Finance Inc., we have loan officers with decades of experience and access to multiple different no/limited doc loan types. Reach out today for a free consultation, to see if we have the right program for you.