No-Income Verification Mortgages/ Hard Money


No-Income Verification Mortgages/Hard Money

In no-income verification mortgages, lenders don't require applicants to prove or document a source of income. Other names for such mortgages include "stated-income" loans and "no-doc" or "alt-doc" loans, but all of them fall under the same umbrella definition with only a few differences. There are four main types of no-income verification mortgage loans, each with its own level of requirements.

·         SISA - stated income, stated assets

·         SIVA - stated income, verified assets

·         NIVA - no income verification, verified assets

·         NINA - no income verification, no asset verification

Stated Income, Stated Assets

A SISA loan can be useful if you have significant income and assets that are difficult to document. When you apply for a SISA loan, the lender agrees to accept the income and asset figures you provide, with no documentation needed. This can be helpful for small business owners who keep all their assets in a business account and don't document their personal compensation with pay stubs, W-2 forms or 1099 forms. In such cases, bank statements for 12 to 24 months can be used to calculate the business's monthly cash flow in place of other documentation.

Stated Income, Verified Assets

This type of loan is most useful if a big part of your income is hard to document, but you have verifiable assets on hand. The lender agrees to accept your income figure and verify your available assets. One example where SIVA would be appropriate is for someone whose income is based on tips or gratuities but who has a personal bank account in their own name.

No Income, Verified Assets

A no-income, verified assets loan is meant for applicants who have verifiable assets but income that cannot be documented. In this case, the lender verifies your assets and does not take your income into consideration. A retiree who draws income from their retirement accounts may not have enough verifiable income, but their assets can be documented, so they would benefit from using a NIVA loan.



No Income, No Assets

With the fewest requirements of all, NINA loans are best for applicants who cannot provide documents for either income or assets. NINA lenders base approval solely on the collateral and other non-income factors. Someone who is employed by a foreign company and holds their assets in a foreign bank may not be able to provide any documentation acceptable to U.S. lenders. Using a NINA loan in this case might allow the borrower to skip document translation and international asset transfers.

History of No-Income Verification Mortgages

No-income verification loans became very popular in the years leading up to the housing market crash in 2008. Their growth was fueled by relaxed underwriting standards and rising real estate prices which led consumers to believe that homes would continue to gain value indefinitely. Once it became clear that this wasn't the case, no-income loans fell out of favor among lenders and investors.

Originally, these loans were meant to accommodate people whose income was complicated by seasonality, self-employment or independent contracting. During the run-up to the crisis, they instead became a shortcut for lenders to push unqualified borrowers through the mortgage process.

As housing defaults skyrocketed and government regulation tightened, these loan programs all but disappeared. Lenders were required to document the borrower’s ability to repay the loan, and investors had little interest in buying mortgage-backed securities for loans that Fannie Mae and Freddie Mac would not endorse.

Are No-Income Verification or Limited Income Verification Mortgages Still Available?

These types of loans are still available from lenders who offer portfolio lending options and aren't held to qualified mortgage rules by government agencies like Fannie Mae or Freddie Mac. No-income lenders use private equity from investors to create these product offerings. These include direct lenders like Chase Bank, Citibank and U.S. Bank; wholesale lenders like Stearns, JMAC and Newfi; and even large financial investment firms like Charles Schwab.

Most other banks and credit unions don’t offer these types of loans because it's difficult to package and sell them on to investors in the secondary market. Given that the only alternative is to keep such mortgages in-house, few lenders are willing to make that kind of capital commitment. The added risk presented by no-income mortgages is just one more reason the majority of lenders steer clear of offering them.

Is a No-Income Verification or Limited Verification Mortgage Right for You?

No-income and limited-income verification mortgages are worth exploring if you're self-employed, have seasonal income streams, or otherwise have trouble qualifying for a conventional mortgage loan. All of these scenarios can make it complicated to document your income, which makes the simplicity of a no-verification loan ideal.

However, consumers with insufficient income should not use these loans as a way to disguise insufficient financial standing. You should only apply for a no-income verification mortgage if you can actually afford to make payments. These loans should be seen as a solution for cutting down paperwork, not for avoiding the common-sense question of affordability.

Definition of Hard Money

 Hard money, sometimes also referred to as “private money”, is the term used for loans secured by real estate that are funded by private parties and are typically offered at higher interest rates than an FDIC insured bank. Hard money underwriting guidelines are almost always less invasive and time consuming than the guidelines followed by a traditional bank or financial institution. Borrowers seek hard money loans when they are unable or do not have the luxury of time to wait for financing from more conventional sources. This can be due to a number of reasons, which are discussed in the next section.

Why Borrowers Choose Hard Money Loans

The question often arises as to why borrowers would seek a private money loan for real estate at the high interest rates that private money demands. The immediate assumption is that these are highrisk ventures and the borrowers do not have the credit-worthiness that would allow them to borrow from traditional and conventional sources. There are in fact a wide variety of factors that determine whether or not a borrower would be a candidate for a private money loan. Let’s look at several more common reasons below

Quick Funding of a Time Sensitive Loan

Banks and conventional financial institutions frequently take 90 days or more to close a loan due to strict regulatory requirements and a tedious due diligence process that must be adhered to. A hard money lender can often fund a loan within a week.


 Reduction of Red Tape and Paperwork Hassles

 Traditional lenders require substantially more documentation than private money lenders and have more stringent loan committee processes and guidelines. Borrowers must often submit confidential financial information and complete an abundance of paperwork to find out if a loan will be approved. A hard money lender focuses mainly on one aspect of the loan (collateral) while a bank will scrutinize the credit, financials, job, etc. of a borrower.

Flexibility and Creative Problem Solving

Private money lenders are more creative with complex loan situations. They can offer options like cross-collateralization of other properties or offer more flexible terms than traditional lenders. The property may also have issues that make it difficult for conventional lenders to finance such as the need for improvements to increase the occupancy of a building, or partially completed construction, etc. Additionally, traditional lenders will not lend on raw land due to their strict underwriting guidelines and are known for limiting the amount of investment properties a borrower can have in their portfolio.

 Return on Investment

Many borrowers such as builders, rental property investors and property “flippers” have a specific goal in mind when looking for a loan- speed at which they can get their loan funded. These individuals are focused on making a profit and the simplicity and minimal time it takes with a private money lender can far outweigh the higher cost involved for financing. Time is money.

Nature of the Loan and Market Conditions

 The constant change in market conditions and laws that govern the real estate market force conventional financial institutions into taking even more time and have become even more conservative with approving loans. Private money lenders on the other hand have the ability to assess the property or project’s risk and charge an appropriate fee for the perceived risk. In essence, private money lenders are equity based and the most important component of the loan funding is the evaluation of the real estate. A borrower’s past history and level of commitment plays a part in determining the viability of the loan but is not as paramount to the decision-making process.

Borrower Circumstances

Again, these are not just limited to credit problems or a past or current bankruptcy as is most often assumed. There may be tax liens or other liens that need to be paid, or the property may be entering into foreclosure for a variety of reasons. The property may be held up in probate or involved in a divorce or other family situation. There may be unemployment or a medical emergency. The list is endless, but the principle is basically the same; private money lenders lend on the value of the asset first, and the strength of the borrower second. Ultimately, the decision resides with an experienced underwriter to evaluate the “whole story” when evaluating a potential borrower. Private money is used by a wide variety of borrowers ranging from very high net worth individuals to sophisticated real estate investors and developers, all of whom prefer the speed and simplicity of the hard money loan process.