During the 1990s and up through the market crash of 2007, many self-employed borrowers made use of Stated Income or No-Income-Verification (NIV) mortgage programs to purchase or refinance their homes. These programs recognized that self-employed borrowers have access to cash flow for debt service that a normal wage earner would not. These programs disappeared after the crash, but are finally making a limited re-appearance. Here, Mark Wells of Preferred Financial Services answers questions about the new programs.
Are we actually going back to No Income Verification programs where I provide no income documentation?
Not exactly. The borrower must provide 24 months’ bank statements showing sufficient cash flow to service the mortgage debt and other consumer debts.
Do I provide business bank statements or personal bank statements?
There are actually programs for both. The business bank statement program is at a slightly higher rate and requires more down payment than the personal bank statement program, but either can be used.
Do I have to provide my tax returns when I apply for this type loan?
No, tax returns are not used—just the bank statements.
Do I have to have better-than-normal credit to use these programs?
The programs will go down to a 640 score, but the rates are much higher at the lower score thresholds. Ideally, a score in the 740+ range will give the borrower the best rate.
How much down payment is required for these purchase loans?
If you use the personal bank statement program, you can put as little as 10 percent down. If you use the business bank statement program, 20 percent minimum down payment is required.
What kind of rates and terms are available?
Because the lender is accepting a much higher risk threshold on these loans, the interest rates are higher than standard programs. For the average 20-percent-down borrower with 740 scores, the interest rate will be in the high 5 percent to low 6 percent range. Also, these loans are not available with fixed-rate terms. For the time being, they are quoted as five-year ARM’s. (The rate is fixed for five years but then adjusts annually after that. The amortization of the loan is 30 years).
Mark welcomes questions and comments, and is more than happy to help you with any mortgage needs. He can be reached at 864-235-9596 or via email at Mark@TheGreatestRates.com.
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