No income verification home loans: A guide to your options

Buying a home is a key part of the American dream, yet not everyone has the steady monthly income that most lenders require to qualify for a mortgage, even if they have other ways to repay the debt. 

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Many small business owners and entrepreneurs earn a good income, for example, but that isn’t always reflected on their tax returns after taking deductions from business-savvy investments. Retirees or people who inherit significant sums of money may have more than enough to buy a home, but they don’t want to spend it all at once, in other cases. 

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Luckily, there are often still ways to qualify for a no-income-verification home loan. These financing options work differently from conventional mortgage loans, but they can be just the key you need to unlock the door to your next home. 

No income home loan options for homebuyers

A no-income home loan is a type of loan where the lender doesn’t use traditional methods to ensure your ability to repay the loan, such as by checking your pay stubs from a regular hourly or salaried position. Instead, they’ll rely on other lending criteria to make sure you can repay the loan, such as with your existing assets, non-traditional income, or future rental property income. 

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Each one of these options has its pros and cons. For example, many require less in the way of traditional documentation, hence the moniker “no-doc mortgage” or “no-doc loan.” This makes them especially appealing for high-net-worth individuals who may not have the conventional documentation required for a mortgage. 

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On the other hand, no-income-verification mortgages typically require outstanding qualifications in other areas, such as having a higher credit score and a significant amount of savings, sometimes up to the point of being able to purchase the house in cash outright. Finding a lender can also be challenging since these loans aren’t as widely available, and they can carry higher interest rates than traditional mortgages to compensate for the lender’s risk. 

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Here are some of the different types of no-doc mortgages:

FHA loan

Loans backed by the Federal Housing Administration (FHA) are popular options for people who can’t qualify for a more conventional loan, including people with diverse financial situations. These loans are offered by private mortgage lenders, subject to the rules set by the FHA. 

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The FHA loan program itself doesn’t specify any minimum income limit, although lenders can set their own higher requirements if they wish. There are other income-related limits, however. 

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Typically, you’ll need to meet a debt-to-income ratio of 43% or less. It’s easy to calculate your debt-to-income ratio by dividing your monthly minimum debt payments by your monthly income — i.e., the percentage of your monthly income that goes towards debt payments. If you have $500 in mandatory debt payments each month, for example, you’d need to be earning at least $1,162 before you’re able to qualify for an FHA loan. 

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On the other hand, if you don’t have any monthly debt payments, there’s technically no specific income required, either; besides a sufficient amount to make your monthly debt payments as deemed fit by your lender, that is. 

NINA loan

A “no-income, no-asset” loan, or NINA loan, used to be available for residential homeowners before the 2008 mortgage crisis. Today, it’s only available for real estate investors after new government regulations were introduced requiring lenders to verify that loan applicants have sufficient income to repay the debt on their own home. 

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Most real estate lenders have even moved on from offering NINA loans at all, although it may be possible to find one who will underwrite one of these loans. You’ll need to demonstrate a strong income-generating potential for the rental property, as well as having stellar qualifications in other areas, such as an excellent credit score and a large down payment of at least 20%. 

Bank statement loans

Conventional lenders verify your income by looking at official reports of your income, like your pay stubs, W-2s, and/or tax returns. Alternatively, some lenders may allow you to qualify for a mortgage based solely on your bank account transaction history that shows an adequate amount of income to repay the loan. You’d need to provide your lender with your monthly bank statements going back at least two years. 

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Bank statement loans are ideal for self-employed people who may not earn a regular income like their salaried counterparts. However, you may have to search around for a bit because these loans aren’t commonly offered by banks. You’ll also typically need a good credit score and a down payment of at least 10% to 20%. 

Asset-based mortgage

If you’re sitting on a large sum of money, like an inheritance or a retirement account, another option is an asset-based mortgage. These loans are made based on the value of your liquid assets — i.e., an investment or bank account. Lenders generally restrict these types of loans to second homes rather than your primary residence. 

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The idea is that you steadily whittle away at your assets over time to make your monthly payments instead of making your monthly payments from your paycheck as an employee. That’s why these loans are also known as “asset depletion loans,” because you essentially start with all or most of the loan amount in your liquid cash reserves but slowly draw it down over time as you repay the loan. 

No-income home loan options for homeowners

The options we’ve presented so far don’t rely on your existing home equity to purchase a home. If you’re already a homeowner and you’re comfortable leveraging that equity, however, you have more options available to you. Here are a few of the most relevant:

Home equity investment

A home equity investment (HEI) allows upfront access to funds that you can use for anything you want, including a second home or a rental property. There are no income requirements because you aren’t required to make any payments during the 30-year term of the HEI. The credit score requirements are more flexible than those of traditional home equity financing solutions. 

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No one can tell the future, so your actual financing costs are unknown until it comes time to repay the loan, although there are caps in place to protect you. You can repay the HEI early at any point during the term, and many homeowners do this if they sell the home. 

Reverse mortgage

Many people are familiar with how reverse mortgages can offer a steady monthly payment over time, but they can be disbursed as a lump sum, too. You can also use these funds for anything you wish, including purchasing another property. This will create an outstanding balance due against your home that requires no monthly commitment until full payment is triggered, typically when you move out of the home or pass away. 

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A major downside of reverse mortgages is that you’ll need to be at least 62 years of age to qualify. The amount you can borrow is typically limited in these first years of eligibility, with your potential loan amount increasing over time. 

HELOC/home equity loan

Home equity lines of credit (HELOCs) and home equity loans both function as second mortgages against your home. Most lenders allow you to borrow up to 80% of your home’s value, minus the amount owed to your primary mortgage lender. If your home is entirely paid off, in other words, you may be able to borrow up to 80% of its value to purchase another home. 

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The way each debt is paid out and repaid works differently, however. Lenders offer home equity loans as a lump sum, which you repay with steady monthly payments at a fixed interest rate. 

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A HELOC, on the other hand, operates as a line of credit that you can borrow against as you choose, with two different types of payment schedules. You’ll make interest-only minimum payments during a multi-year draw phase, followed by full interest and principal payments during another multi-year repayment phase. Interest rates are adjustable, so your payments may fluctuate a lot over time. HELOCs/home equity loans generally require income verification, but there are exceptions. 

Final thoughts 

The name “no-income home loan” is a bit of a misnomer since all lenders will verify that you’re able to repay the debt one way or another. Most people do that through a steady paycheck from an employer, but there are other sources of non-traditional income that you can use to leverage your way into a home. Some people will use existing liquid assets, while others might rely on income generated from renting out the home they’ll be purchasing. 

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In any case, it’s especially important to compare all of your options thoroughly before making a decision — both in terms of your lender, but also which product is most appropriate for you. No-income home loans typically come with much higher interest rates and alternative structures that may be confusing to some people. The only way to know you’re getting a good deal on your next real estate purchase is by comparing costs just like you would for anything else. 

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