A No Income Verification Loan, also known as a Reduced Document Loan or a Stated Loan, was a very popular loan option at the height of the real estate market when borrowers with even a very low credit score could obtain a stated income mortgage. Reduced document loans are much harder to find today, as they are riskier to both borrowers and lenders.
When you are able to find a lender who offers stated loans, expect a much higher rate which may be up to double the current average interest rate.
No income verification mortgages today are most popular with self-employed borrowers who usually have difficulty qualifying for a typical mortgage because they have trouble documenting steady, stable income, or they receive income from several sources. In such cases lenders will view the applicant's debt-to-income ratio as too low to qualify for a mortgage. A stated mortgage uses different loan criteria that makes it easier for self-employed borrowers to qualify.
When you apply for a reduced document loan, your lender will want proof of employment as well as a letter from your accountant showing your share of ownership and your business name, if you are self-employed. You must also show that you have held steady employment for two years.
A mortgage lender will need to verify your assets for the last two months with documentation of any deposits and withdrawals over this period. You may not use gifted funds for a stated loan, and you can be sure that your lender will go over your assets carefully to ensure you have sufficient reserves after closing. In many cases, this means a minimum of one year of mortgage payments in savings at closing.
Expect to put down a large down payment to secure a reduced documentation mortgage. Depending on the lender and the amount of the loan you are requesting, this may be 35% to 50%.
Interest only loans have other requirements to be aware of, along with a high down payment and sizable assets and income. You will need excellent credit with a FICO score of at least 720. Most low doc mortgages are adjustable rate mortgages (ARMs), and you are typically limited to buying a single-family home or condominium.
While no income verification loans are harder to find than in the past, they are still available to well-qualified buyers.