I bet you thought that you needed tax returns to get a mortgage. Well, guess what? You don’t.
The catch? You need a better credit score, more down payment, and the rate is higher than a conventional mortgage, but you can get the cash you need to buy or refinance a home. Afterward, refinance out of the higher rate when you have the qualifying income and/or credit score.
Why wouldn’t a person have tax returns? A businessperson may not have finished their “books,” to delay paying taxes owed, no access to records due to accountant change, relocation and divorce. A person may have tax returns, but will not qualify with the income shown.
Underwriting guidelines have to be met in order for mortgage lenders to sell your loan, after you close, to the mortgage buyers on the secondary market. If you fit into the underwriting sweet spot box, you should qualify easily. Sometimes, though, you may not have the documentation needed for a conventional loan.
Alternative lending, aka NON-QM lending in the mortgage world, refers to mortgage financing that falls out of, or is more flexible than, the conforming criteria. Dodd-Frank was passed in 2010, and a whole bunch of compliance and regulatory laws changed the mortgage products available.
In the last several years, the market has changed, and old wounds have healed. That healing has brought about new mortgage financing products and a financing opportunity for those borrowers who are recovering and who have recovered from the real estate market downturn.
Some of the new products utilize bank statements only, allow for lower credit scores, shorter waiting periods between financing and financial housing events (deed in lieu, foreclosure, bankruptcy) and higher debt ratio calculations (total the debt figure and divide it by your income). There is a no-income-stated product for those who want to buy or refinance a primary residence. Use and occupancy of the property is considered by lenders in determining the selection of alternative, no tax return, programs available.
To give you an idea of what is available for those “out of the box,” borrowers see below:
DSCR: Debt Service Coverage Ratio Program for 1-4 Investment Properties
Ideal for borrowers who prefer not to use DTI criteria or are unable to qualify using conventional financial documentation loan requirements. Based on reserves, payment history and credit depth. Typically, a qualifying calculation historically used for commercial properties, is now a common way to qualify 1-4-unit investment properties. Net operating income divided by total debt=DSCR.
Alt-Doc (Alternative Documentation) Qualifies Homeowners Using Nontraditional Documentation to Determine Qualifying Income
Ideal for borrowers who do not meet traditional documentation requirements but want the chance to qualify using flexible alternatives.
Flexible Documentation Can Be Used:
- 1099 only
- W-2 only
- One-year tax return
- 12-month bank statement
No-Income Verification Mortgage: For Primary Residences and Homes Only (Not Available in All States)
Highlights:
- Employment is not stated on the application.
- Income not stated on the application.
- Income documentation not required.
- Primary residence and second homes.
- Asset seasoning 30 days.
Profit & Loss Program
Owner-occupied only. Documentation for self employed: a 12-month unaudited P&L from a tax preparer. Supporting bank statements not required.
Asset Depletion/Dissipation
Uses your liquid assets to calculate an income used to qualify you for a mortgage. Qualifying liquid asset value is divided by a number of months (between 240 or 360), to get a monthly income amount. Qualified assets that can be used typically include (Keep in mind, any monies being used as a down payment cannot be used in the calculation)
- Checking or savings accounts
- Money market accounts
- Certificates of Deposit (CD)
- Investment accounts such as stocks, bonds, and mutual funds
- Retirement accounts such as a 401k or IRA
Foreign National Program (FN)
Obtaining a loan for a foreign national “FN,” Non-Permanent Resident Alien “NPRA,” or Permanent Resident Alien “PRA” is similar in process to doing a loan for a U.S. citizen, but the underwriting is slightly different. Borrowers who are not U.S. citizens fall into one of the two classifications: permanent or non-permanent resident aliens. Borrowers who are not U.S. citizens must currently reside in the United States to be eligible. Non-citizens who do not reside in the U.S. are classified as Foreign Nationals. The classifications are as follows:
- FN: The borrower has no Green Card and no Visa or has income from foreign sources.
- NPRA: The borrower lives and works in the U.S. and is here on a Visa (of which there are many diverse types and must be unexpired and valid for at least six months). Does not have a Green Card. Must have a U.S. employment contract and Social Security card.
- PRA: The borrower lives and works in the U.S. and has a Green Card. Usually must have two years of U.S. income/tax returns.
- While borrowers under traditional requirements must document their assets, traditional credit tradelines and credit scores, there are loan programs that have reduced requirements with credit scores not required.
- Ideal for: Non-U.S.-citizen borrowers who want to purchase a second home or investment property. This program serves non-resident aliens who hold a visa for temporary residency, not Non-Permanent Resident Alien status.
How dependable is the commitment you have in hand? There are numerous underwriting guidelines and mortgage products. Make sure that you are vetted properly, so that there are no last-minute issues arising that could have been prevented from the start.
Smart suggestion: Know what program you fit into way before you go through an application process. This makes the process less difficult with less stress. On purchase deals, you want to know, as a buyer, that you can take the deal to the finish line and throw your hands up and scream, “We closed!”
Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp. and www.Mortgagegenius.com. He is a real estate mortgage banker and business financing expert with over 33 years’ experience. He currently has 214 5-star reviews on Zillow. Carl and his team will help you get the best mortgage financing for your situation, and his advice will save you thousands. www.greenbackcapital.com [email protected]
