No-Income Home Loans
Cafeteria Style!
The subject of "No-Income" loans is one that is visited
frequently by our clients. The biggest challenge for us is to show
how and when this might be a way for someone to obtain mortgage
financing where they might previously have believed they couldn't.
From the many situations we've reviewed over the past months, I
felt it would be a good idea to re-visit this subject. Please be
sure to save this article if you feel ANY of the situations described
may apply to you or someone you know who is buying, selling or refinancing
a home.
"No-Income" loans are the most widely misunderstood loans
in the mortgage industry. Far too many people still think they cannot
get a mortgage because they feel they don't have enough income to
qualify. A "No-Income" mortgage loan provides an alternative
way for a borrower to get a loan for the purchase or refinance of
a home.
Following are several examples where a no-income loan works beautifully.
They are presented "Cafeteria" style so you can see different
examples for situations most resembling yours or someone you know.
It's far easier to understand the "No-Income" loan when
highlighted in terms that apply directly to your situation.
Self-Employed Borrowers: Contractors (plumbers, electricians, landscaping,
painting, lawn mowing etc.), consultants, professionals, house cleaners
and others. All are good candidates because they often show a lower
income to the IRS to reduce their tax bite. This is one of the perks
of owning a business.
One spouse/partner has good credit: We have seen this situation
many times. One spouse (or partner) has good credit while the other's
has suffered due to divorce, medical situation, bankruptcy, etc.
This leaves the other borrower to qualify on his/her own. When the
spouse or partner cannot qualify for a loan due to insufficient
income, the no-income loan can save the day and get the job done.
Commission-Income Borrowers: Salespeople, people receiving 1099
income as sub-contractors and independent representatives. After
expenses, they typically show less money on their tax returns and
qualify for lesser amounts. Most are capable of paying on a higher
mortgage amount and can do so with a no-income loan.
Divorced and soon-to-be divorced borrowers: If credit has not suffered
too badly, the financial burden of qualifying solo for a loan is
more than will be accepted by most conventional lenders. Divorced/divorcing
people often choose NOT to buy because they don't want to add insult
(a loan denial) to their existing injury. The no-income loan can
help both sides to move forward with their financial lives.
Borrowers who want to maintain privacy: Some people have an aversion
to sharing their personal financial information with anybody. For
these folks, the no-income loan enables them to maintain this privacy
from the prying eyes of the lenders. Income and assets can be left
out of the qualifying process.
Borrowers who have Cash: Cash is a four-letter word for most lenders
in the mortgage business. For borrowers who have cash in their mattress
or safe-deposit box, the no-income (specifically "No-Doc")
loan will enable them to bring their cash into the purchase situation.
There may be other issues to address depending upon the amount of
cash, and they can be discussed more thoroughly with a mortgage
professional.
Large gift: Borrowers who have access to a large gift (of cash
toward a purchase) will benefit from a no-income loan. A program
where the source of the gift isn't a concern works well for this
situation. It also keeps the donor of the gift from having to be
considered as a co-signor on the loan, enabling the borrower to
do the transaction on her/his own.
Social Security or Pension Income: We have closed several mortgages
where the income from social security and/or a pension doesn't allow
a borrower to qualify for a mortgage. These borrowers have - in
some cases - taken on a "cash" job where the income is
not reported to the IRS. No-income loans can help these borrowers
obtain financing when they may need it most.
Borrowers between jobs: Timing is everything. It's best to borrow
when you have a stable source of income to support the repayment
of a loan, but if you are in a situation where you may need to access
funds, the no-income loan is the perfect fit. I must stress that
you should have the means to make the monthly payments on your loan.
To do otherwise is financial suicide.
Rental Property Investors: For situations where a borrower has
the required down payment for the purchase of investment property
and wants to minimize the paperwork, a no-income loan would be appropriate.
This can save the need for tax returns typically required of investors.
As always, your credit level will determine your rate. You may
also be surprised to find that you actually CAN qualify for more
than you think
especially if you have good credit. The first
step is to investigate your options with a mortgage professional
who has plenty of experience with this type of loan.
Written by Mark Atkinson of www.ConnecticutHomeandLoan.com
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