December, 1, 2020

Traditional mortgage rules require all lenders to prove, document, and verify sufficient income to safely afford a mortgage payment.

But face it, not everyone fits the cookie cutter mode of traditional home loans, especially the self employed. The ability to write off items on your taxes can made it look on paper like you are starving, yet you really do just fine.

Therefore you need a non-traditional loan product, and that is exactly where our line of Non-QM loans helps the self employed borrower. Review this page for more information on the popular bank statement for income loan, the asset based programs, and even the true no documentation loans for investment properties.

COVID-19 UPDATE: Due to an extremely volatile market, lender capacity, margin calls, and secondary market concerns caused by the virus, the ENTIRE MARKET across the country for the loan types listed on this page has constricted, with many lenders no longer offer them, or severely tightening guidelines. For example, increasing down payment requirements, or needing higher credit scores.

These loans are slowly starting to come back, but all options may not yet be available

Here we will review many of the current alternative loan option including bank statements loans, non-prime loans, asset based qualifying, and even no doc investor cash flow options.

Current traditional loan lending rules REQUIRE ALL LENDERS to document sufficient monthly income to safely afford the house payments. Traditional loans like Fannie Mae, Freddie Mac, FHA loans, and VA loans, all deem this proof as regular documented income, like pay stubs, tax returns, social security, child support, etc.

For self employed borrowers, lenders will look at your last two-years Federal Tax Returns, both business and personal. If you get 1099's, you are considered self-employed. We look at your return, and essentially, whatever you report to the IRS as taxable income is what we use for mortgage qualifying. If you write your income down, that is great for not paying taxes, but a gigantic problem for home loan qualifying. Learn more about self-employed mortgage loans.

For those who received tipped income, commission, or others who income varies, your income will be averaged over two-years based on W2's and tax returns.

Non-Traditional mortgage loans, now called Non-QM loans have made a comeback, but they are very limited compared to the early 2000's, but at least they are available again to some people in need of this type of mortgage loan option.

Expect:

1. Bigger down payment requirements (no less than 10%)
2. Higher interest rates (starting about 1% higher than regular loans, and go up from there)
3. Higher Closing Costs

Basically you have four current alternative loan options:

Old fashioned stated income loans are also becoming available again. These loans are known as "Outside of Dodd Frank" loans that don't meet the strict "Qualified Mortgage" rules that dictate traditional mortgage loans.

• No proof of income needed (stated income)
• Investment properties only
• W2 job OK. (don't need to be self employed)
• Must prove down payment and closing costs money
• No Reserves required
• Up To 75% LTV (25% down)
• Interest Only payment available
• No Pre Payment Penalties
• Rates start about 2% higher than standard loans
• 1 – 4 unit properties:
• Business purpose O/O
• Foreign Nationals OK
• Fix and Flip
• Property can NOT be rural in nature.

ASSET BASED / ASSET DEPLETION Loan Programs

In lieu of normal income documentation, borrowers with significant net worth may qualify for a mortgage loan by documenting sufficient assets to cover the following:

ABILITY TO REPAY IN FULL Loan Program

This program is pretty straight forward. You simply prove you have enough liquid assets to cover the loan balance.

• No monthly income require
• Do not have to currently be employed
• Minimum 25% down payment
• Purchase or Refinance
• Owner occupied or Investment property
• Scores as low as 600 allowed
• Show only two months asset statements

"NO DOC" loans had been around for years, and served a niche market for the self-employed, commission, and tipped income home owners. Because of their additional risk, they came with higher interest rates, bigger down payments, and generally were only available to self-employed people with a minimum of 2-years provable self-employment history and trouble documenting their true income.

As the home loan markets changed through the early 2000's, these loans grew in popularity, especially once Wall Street introduced new no doc, stated income stated assets (SISA), stated income verified assets (SIVA), no income no asset, job (NINA), and other ridiculous variations with underwriting guidelines so silly almost anyone could qualify for a home loan. Interest rates on these loans became only slightly higher than regular loans, and down payment requirements dropped to sometimes even zero down!

These new variations turned a great niche mortgage program into what became commonly known as liar loans. This was because because home buyers were easily allowed to misrepresent their true circumstances, and Loan officers were more than happy to look the other way to close a loan. Theses loans were highly abused by consumers, and bad loan officers everywhere, as people realized they could easily get a loan they either should not be getting at all, or more commonly, to get a bigger loan than they normally would have received.

These straight up liar loans were some of the first casualties of the mortgage market meltdown that started in 2007, as many of these customers were some of the very first people to end up in foreclosure. Gee, go figure... Lenders everywhere quickly pulled them from their product lines, and Washington politicians went crazy right after that throwing up numerous rules and regulations that essentially makes these loans now impossible, or banned them completely.

Of course the idea was to eliminate the fraudulent loans, but unfortunately, this left many manyy very legitimate self-employed, commissions, and tipped income people who truly need and benefited from these types of loans without any home financing options, especially once the Dodd / Frank Financial Reform Laws went into effect in 2010.

As we get further away from the financial crisis of 2008, these unique portfolio loans have slowly crept back into the market.