No-income investment property loans are a wonderful tool for numerous investors across the country. They allow investors under specific circumstances to qualify for loans with greater efficiency and convenience, and allow people to enhance their portfolio, even if they already own multiple properties.
But “no income” does not mean “no documentation.” While eliminating the income paper work is extremely helpful for investors, there are still requirements for documentation. If you are seeking to qualify for a no-income investment-property loan, make sure you understand the various documents that will be required.
Required Documentation for No-Income Investment-Property Loans
Proof of Six Months Worth of Reserves
If you choose to use our no-income loans for your next investment property, you will need to prove that you have at least six months worth of reserves, which can be readily-available money in a bank account, funds from investment portfolios (which will be classified differently), or equity in the property if you are doing a cash-out refinance.
The cash reserves will need to be equivalent to six months of payments on the investment-property mortgage. If the monthly payments are $2,000, for example, you will need to prove $12,000 in cash reserves. ($2,000 x 6 = $12,000)
This total can be found in different locations…
Current Bank Statements
Most investors will simply use money in bank accounts as their reserve funds. If you have enough money in a savings or checking account (which can be in your name or under the umbrella of a business, depending on how you will close the loan), you can simply provide current bank statements that verify the amount. This bank statement should, among other aspects, verify not only the amount, but how the money came into the account. Basically, it should also show information on deposits, including amounts and when it was deposited.
Investment Account Statements and Information
Another source of funding that can be used to verify your reserves is an investment account. Once again, you simply need to verify the amount of money currently held in the account, but there is a catch. When using investments accounts such as mutual funds or stocks, the lender can only use a portion of the account. This is because the amount could go down, so lenders only use a portion, which is usually 75% depending on the nature of the loan. Talk to our staff to see if your investment accounts will qualify as reserves on this loan product.
Equity in Property
Another option for reserve requirements is equity in the property, which can be used if you are getting a cash-out refinancing without income documentation. To verify equity, you will need documents from the lender that currently holds your mortgage. These documents should outline how much you owe, as well as the most current appraised value of the property. Using this information, the lender will be able to calculate exactly how much equity you have in total.
Evidence of Rental Property Income
To qualify for the loan, the income will be determined on one of two ways. First, you can qualify using future income from the rental property, as long as the monthly rent equals 1.1% of the total loan. This can be an extremely beneficial (and highly rare) option for qualification, as all of the borrower’s debts can be effectively ignored from the qualification process. The rental amount, however, needs to be confirmed through a market survey. Using the 1.1% ratio, this no-income program will deliver an 80% loan-to-value ratio for a loan up to $1 million. However, if you can cover 30% of the purchase (meaning 70% loan-to-value), you can get a loan up to $2 million.
If the rent will not cover 1.1% of the loan total, there is a secondary option. This second option will not require the documentation of income, but it will only finance 75% up to $1 million and only 65% up to $2 million. Basically, if the rent is less than 1.1% of the total value, you will need to bring a larger down payment.
To determine the potential income brought by monthly rent checks, a market survey will be completed by a qualified professional. They will consider a wide range of information, including the property itself and the rent costs in the surrounding neighborhoods. Using this information, they can reliably assess the potential income, which will be outlined in a provided document. You’ll need to pass this document (or a copy) to your lender.
Depending on the specifics of the loan, you may also need to bring a rent schedule, which outlines current rent values for comparable properties in the general area. If the unit being purchased is a multiunit property, the lender may also need documentation of rent values for each unit.
This only applies to loans that are using gift funds, but not having a gift letter can delay the process, which could result in the property being sold to another investor. Therefore, if you are using gift funds in a no-income investment-property loan, make sure you have the gift letter prepared well ahead of time.
A gift letter is required if a loan is being approved with the use of gifts, which can be put towards either the down payment or cash reserves. This gift letter should include lots of information, including contact information for the gift giver. One of the most important aspects of the gift letter is a statement that the money being given is not a loan. Lenders need to see that the borrower will not have to repay the funds, which would impact the debt-to-income ratio and could disqualify the loan.
Increase Your Chances of Approval with SDPL
With these documents, you should have no problem qualifying for a no-income investment property loan. If you have any more question about this program, feel free to contact our helpful team.
We take a common-sense approach to mortgage approval, increasing your chances of landing the right mortgage for a primary home, vacation house, or investment property!