No Income Doc, Prime Loans & Sub-Prime Loans: What Are the Differences?
No Income Doc, Prime Loans & Sub-Prime Loans: What Are the Differences?
Best Loan on the Market for No Doc
This article is designed to help save time when shopping for a home loan and apply for the right loan based upon credit, income and property situation.
PRIME LOANS: The best loans and rates on the market are going to be Prime loans offered by banks, credit unions and mortgage brokers. These loans are also known as conforming or conventional loans and government loans which include VA, FHA and USDA. Conventional loans are usually sponsored by Fannie Mae and Freddie Mac and all conventional lenders have to follow their rules, regardless of which lender you use, with somewhat lenient rules for government loans. In other words, shopping around to different prime lenders, if your loan was declined, is a massive waste of your effort most of the time unless it is a matter of a bad interpretation of the rules. That is why it is important to pick local lenders and loan agents with lots of experience so that if a rule is interpreted incorrectly by a lender, your loan agent can straighten that out. In some cases, if your Prime loan was declined, you may want to apply for a FHA loan which is more lenient on credit, income, job history and debt ratio issues, before you have to move up to the more expensive, sub-prime loans.
PRIME LOANS:
1. BEST OPTION: Non-CPA generated profit and loss statement. Borrower can generate an unaudited P & L statement to qualify with 25% down and 2 months bank statements.
SUB PRIME LOANS: These loans almost never include retail banking institutions; one finds these sources through Mortgage Brokers. These lenders are more lenient on credit, property and income issues than Prime lenders are. The rates are between 1 to 2% higher depending on what one is looking to dodge. tated income and no doc are sub-prime loans.
YOU SHOULD NOT EXPENCT THE BEST RATES ON THE MARKET FOR NO DOCS LOANS. RATES ARE 1.5% TO 2% HIGHER THAN THE BEST RATES ON THE MARKET.
STATED AND NO INCOME DOC LOANS: “Stated” or no income (no tax returns or any income documentation required for the self employed and employed) loans are placed at sub prime sources. For any loan that is not using income, the fico scores should be over 720 to get any decent rate. These loans are not really stated income loans. They fall into 3 categories:
1. Owner Occupied or 2nd home/ Bank Statment loans:
The first category is based upon 12 to 24 months bank statements. The lender is looking for consistent deposits over a 12 to 24 month period and then averages those deposits over 12 or 24 months. The lender gives you choice to use 12 or 24 months to do this. Rates 1 to 1.5% higher than prime loans. It is highly unlikely that many people qualify for this loan either because they are applying for a no doc loan precisely because they don’t have enough money going through theri accounts to qualify, but on e was to qualify, the lender still subtract money from the deposits to account for expenses (up to 50% of deposits)
2. CPA generated Profit and loss statement. This is a worthless product as CPA’s are not going to generate anything other than exact numbers based upon tax return and most accountants will charge you up to $1,000 to do this.
3. Owner Occupied, No Income, Job or consistent deposits required:
COMMUNITY, owner occupied loan: There is one owner occupied loan that does not require any income proof or job or consistent bank statements and it is a 30 year loan. It is offered by the treasury and is available only through brokers. There is no pre-payment penalty. 25% to 30% down on these loans. No second homes allowed. 680 Fico score or better.
4. Investment Property DSCR (debt service coverage ratio) Loans
The third category, no job or any income stream is required. This can only be used on income or rental property. You do not even have to have a job or be employed to do these loans, but a minimum of 20% down is required and the rate is based upon the cash flow of the rental. Generally the lender wants to see the PITI (principle, interest, taxes and insurance) to be equal or less than the projected rents of the property. The rents are determined by an appraiser;s comparable rent schedule.
TOUGH CREDIT: For loans that have fico scores lower than 620 or other unique property, credit or income challenges, you fall into the sub-prime or hard money loan scenario, you will have to use a mortgage broker. In some cases, if you are a first time home buyer, you still may be able to qualify for a FHA loans even with a 580 fico score. I would try that first.
HARD MONEY: If you have mortgage lates of 90 days or more in the last year, you will not qualify for a sub-prime loan and will have to go hard money. And if you credit scores are less than 620 and you have stated income, you will need a hard money loan which is money loaned from private parties. The rate is between 9 and 11 percent and 3 points on average.
Ralph Migliozzi
Broker Originator Serving Northern California
NMLS 282851 DRE #01002038
(p) 530-330-3073
