By Dian Hymer
Most lenders require prospective borrowers to provide stacks of paperwork documenting their financial history and capabilities before a mortgage is approved.
Typically, you can expect to provide a loan application, verification of your income and employment, proof that you have the funds required for a down payment and closing costs, corporate or partnership tax returns if applicable, a profit and loss statement if you are self-employed, two-years' tax returns, and proof that your ex-spouse is making alimony payments on time, if you need this income to qualify. And the list goes on. The more complicated your finances, the more paperwork the lender will want.
There is an alternative to this paperwork nightmare. It's the modern version of the old "quick-qualifier" mortgages that were popular in the 1980's. Today's version is known by various names, suck as low-documentation, easy-documentation, no-income verification (NIV) and stated income mortgages.
These mortgages base your qualification on the income you state on your loan application. The lender doesn't independently verify your income with an employer in order to approve the loan. What the lender will want is a loan application, verification that you have a cash down payment equal to at least 20 percent of the purchase price, and a credit score of 640 or more. Good credit is mandatory for these loans.
Credit scores have become popular in the home mortgage industry in recent years. A credit score is based on information from the borrower's credit file. Credit scores analyze a number of variables and generate a score that indicates the likelihood that the prospective borrower will repay the mortgage on time. Usually, the higher your credit score, the easier it is to get a loan.
Easy-documentation lenders will also take "payment shock" into account. And they like to see extra cash reserves. "Payment shock" is the term lenders use to evaluate how much your new mortgage payment will be in comparison to what you currently pay. A lender will feel more comfortable granting a no-income verifier (NIV) loan to someone whose housing payment won't quadruple and someone who also has a generous savings account. This is a borrower who would be likely to make the mortgage payments.
First Time Tip: Be aware that some lenders require borrowers to sign a form that permits lenders to get copies of the borrower's tax returns directly from the IRS. NIV lenders use the borrower's stated income for loan qualification. If such a lender found out that the borrowers had lied about their income on their loan application, the lender could probably call the loan due immediately. And there would undoubtedly be other serious legal consequences. Lying on a loan application is fraud.
Not all NIV lenders require borrowers to sign one of these IRS tax return forms. A good mortgage broker will be able to tell you which lenders do and don't require these forms.
You may find that you have to pay an interest rate premium on a NIV loan. For mortgages of $227,150 and less, you may have to pay as much as 3/8 percent higher on the interest rate compared to a full-documentation loan.
On jumbo loans (loans amounts over $227,150), you'll probably pay less of a premium for a NIV mortgage, perhaps as little as 1/8 percent more than you'd pay for a full-documentation mortgage. And there are some easy-documentation lenders that don't charge a premium at all.
The Closing: Most of the old "quick qualifier" loans were only available in adjustable rate mortgage (ARM) products. The new NIV are available in both fixed-rate mortgages and ARMs.
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