Refinancing enables you to lock into a lower monthly payment, lower interest rate, or different term, depending on your current eligibility.
Typically, mortgage refinance applications require a thorough review of your income documentation and employment review. But what if you don’t earn a consistent income at the moment?
In that case, you may want to investigate another type of refinance: No-income verification mortgage refinance. No matter how drastic your situation, this is a sound strategy to attain loans for the unemployed with bad credit or simply for those with no current income.
How Does a No-Income Mortgage Work?
No-income mortgages, also known as non-qualified (non-QM) loans, are mortgages that don’t require documentation of income. In other words, you don’t need to provide any pay stubs, W-2s, or tax returns during the application.
While no-income mortgage refinancing doesn’t require income verification, your lender will still need to evaluate your creditworthiness using other methods. They can assess the likelihood you’ll make your mortgage loan payments on time by looking at your:
- Credit score
- Bank statements
- Home equity
- Available assets
The History of No-Income Mortgages
Before the 2008 housing crisis, no-income mortgage refinances were more common.1 However, many lenders implemented stricter eligibility criteria since then to avoid similar predicaments. For instance, now lenders often restrict borrowers with bad credit and require higher credit scores. They may also charge the borrower a higher interest rate and require a larger down payment to account for the heightened risk.
For these reasons, refinancing using a no-income mortgage may not allow you to obtain the lower interest rate or reduced monthly payment you had in mind. Although they can still be valuable financial tools worth considering.
How to Refinance With No Income Verification
If you want to refinance your mortgage without providing any documentation of income, you can explore the following loan options.
Stated Income, Verified Asset (SIVA) Loans
SIVA loans allow you to state your estimated income without verifying it. To assure lenders that you can afford your mortgage payments, you can show your bank statements from the past 12 to 24 months instead. To qualify for this type of loan, you’ll likely need a high credit score (700 or above) and an adequate amount of money in your bank.
Asset-based mortgages, also known as asset-depletion loans, are another no-income refinancing option. With these types of no-income loans, your home loan amount is based on the value of your liquid assets. This is somewhat similar to a home equity loan without income, and a home equity investment can be a lucrative avenue to refinance. For asset-based mortgages, your lender will divide the value of your liquid verified assets by your desired loan term. The resulting figure will replace your “income” for that loan’s underwriting process.
Government-Backed Streamline Refinances
If you have a government-backed mortgage and you haven’t missed any mortgage payments in the past year, you may be eligible for a streamline refinance. Unlike cash-out refinances, streamline refinances don’t involve any income verification or home appraisals, so they’re faster and easier to qualify for than regular refinances.2
The Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA) all offer these types of mortgage refinance options, though their specific eligibility criteria vary.
Who Can Benefit From a No Income Verification Mortgage Refinance?
Financial solutions like no-income mortgage refinances and the others listed above may be an attractive option if you’re:
- Retired – If you’ve saved up enough money to retire, you may have plenty of money in the bank to make your mortgage payments. Unfortunately, your ample net worth won’t be reflected in tax returns or pay stubs.
- A business owner – If you own your own business, you may earn a lot of revenue each year. However, your tax returns may not reflect that after you or your accountant implement the relevant write-offs.
- A freelancer – Freelance work has been growing in popularity due to the flexibility it offers. However, freelancers’ monthly incomes are often less consistent than salaried employees. What’s more, your tax returns may be more complicated if you have several streams of income.
As you can see, there are many situations where you may not have a steady, documented income to show to mortgage lenders. Just remember that you always have options. Learn more about each solution and decide which one may be best for your circumstances.
- Brookings. Lessons from the financial crisis: The central importance of a sustainable, affordable and inclusive housing market. https://www.brookings.edu/research/lessons-from-the-financial-crisis-the-central-importance-of-a-sustainable-affordable-and-inclusive-housing-market/
- FDIC. Streamline Refinance. https://www.fdic.gov/resources/bankers/affordable-mortgage-lending-center/guide/part-1-docs/streamline-refinance.pdf