FAQ on No-Income-Verification Loans

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Q. What is a no-income-verification loan?

A. Under conventional, FHA and VA underwriting guidelines, an applicant's income must be verified by obtaining direct verification of employment and income from the applicant's employer, obtaining copies of the applicant's paystubs and W-2's and copies of the applicant's tax returns in some situations. Under NIV loan programs, the applicant's income is not verified by any of these methods. The applicant is qualified from the income stated on his loan application, and with less money down or higher equity on refinances, the applicant is qualified without the necessity of even stating his or her income.

Q. Which applicants can utilize the liberal qualification standards of a NIV loan program?

A. Applicants seeking to take advantage of the easier documentation requirements of a NIV loan program must put a minimum of 10% down on a purchase or must have an equity of at least 10% on a refinance (i.e.: the loan amount of the new loan cannot exceed 90% of the value of the property). Thus, applicants which only have sufficient savings for a 3% or 5% downpayment on a purchase cannot utilize the less stringent documentation requirements of the NIV loan program. The applicant must also have "near perfect" credit. Late payments or other derogatory credit which might be permitted under conventional underwriting guidelines will not be permitted under the NIV loan program's qualification guidelines.

Q. Are there other reasons why an applicant would not want to utilize the NIV loan program?

A. There are several reasons why an applicant that can qualify under the standard documentation requirements would want to do so in lieu of using the NIV program. The interest rate which an applicant will receive on an NIV loan will be considerably higher than the rate which could be obtained on the standard documentation programs. The rate will be between 1/2 and 1 1/2 percentage points higher than the rate which the applicant could obtain on a fully documented application. Furthermore, an applicant applying for a loan under the NIV guidelines may be limited to only a handful of fixed-rate and adjustable-rate loan programs.

Q. Will verification of all sources of an applicant's income be waived under the NIV loan program?

A. No. Rental income, interest income, trust income, child support and other sources of "passive income" will be required to be documented in the same manner as under conventional documentation guidelines.

Q. Are all no-income-verification programs the same?

A. Because income must be fully verified and documented under Fannie Mae, Freddie Mac, FHA and VA guidelines, most mortgage companies do not offer no-income-verification programs. And those few companies that do have such programs require a down payment or equity position of between 20% and 30%. EZDoc programs are available with as little as 10% down on selected transactions. Most other mortgage companies only permit a no-income-verification loan on applications submitted by self-employed applicants. NIV programs are available to salaried employees or other individuals which receive W-2 income as well as self-employed individuals.