Home Loan Programs that do not Require Full Income Verification

Believe it or not, there are quite a few lending programs that you can obtain to buy or refinance your home without full income verification!

Transcript

SPEAKER_01 0:00

Hello and welcome once again. This is Bed Bath and Banter, Arizona Real Estate Edition. Thank you so much for joining us. I am Amy Batten with Waterstone Mortgage.

SPEAKER_00 0:10

And I'm Ryan Batten with West USA Realty.

SPEAKER_01 0:12

All right, today's topic. Uh really popular topic right now because everyone has just filed their tax returns and has grumbled and and or hasn't claimed enough income if you're self-employed. We're gonna go over all of the different loan programs that you can get that do not require full income verification. And there's actually quite a few, so I'm really excited about it.

SPEAKER_00 0:34

Sounds good. Okay, so let's just start off with a kind of a softball for you. So who who most likely is kind of the ideal fit for these types of loans?

SPEAKER_01 0:43

Well, it's a lot of the programs are specifically for our self-employed borrowers. Um you don't have to be self-employed to utilize all of these programs, but it's typically self-employed and real estate investors.

SPEAKER_00 0:55

Okay, and why why is that?

SPEAKER_01 0:56

Uh just because when you're a W-2 wage earner like I am, uh you can't manipulate your income at all to write it down for tax savings purposes. Uh kind of sucky. I wish we could. Yeah, I wish we could. But they got rid of several years ago, there used to be something called 2106 expenses, and that was a way for people who had employment related expenses to write them off on tax returns. Uh when I think the first time Trump was in office, uh, don't quote me on that, but I think that's what it happened. I think you're right. I think you're accurate. They got rid of the 2106 expense deduction, and then they increased the standard deduction pretty significantly. I think he doubled it. So that got rid of the need for a lot of people, you know, to write off other expenses, even mortgage interests. I would say I wasn't wrong. If you notice, when people are, you know, kind of putting out their shtick and their spiels, they don't talk about it being tax deductible anymore.

SPEAKER_00 1:52

And they used to talk about it at nausea.

SPEAKER_01 1:55

Main main reason to buy a house was you can write off your interest. Um, because the standard deduction is so high now, that's just not even a conversation. Uh, unfortunately, we can still write off ours because we have uh you know a higher, more expensive home. But uh typically most people will not have the benefit of the tax deduction of homeownership, and that's okay. So sorry to answer your question. Um, self-employed and real estate investors.

SPEAKER_00 2:21

Okay. Yeah. All right. Um now if they're, you know, you're self-employed, they're a real estate investor, um, and they're looking at the possibility, let's say uh maybe missed the boat this year already, um, but you know, they're planning on maybe buying a home in the next 12 months. What would you recommend that they do?

SPEAKER_01 2:42

Well, I would recommend first um let us reach out to your home loan professional, not your real estate agent. It actually drives me crazy when on, let's say Facebook specifically, because I'm old, I use Facebook, um, excuse me, Facebook specifically, someone will ask a question about a loan and 4,000 people will refer their real estate agent. Um, real estate agents sell homes. They know nothing about financing.

SPEAKER_00 3:09

90% of them 90% of them know nothing about financing.

SPEAKER_01 3:14

Okay. Um, you live with a loan officer.

SPEAKER_00 3:17

So I'm married to one.

SPEAKER_01 3:18

Yeah, you're you're you're you're a little bit more special in the fact that you organically through osmosis, right? Just absorb some of it. But that's not always the case. Please don't ask your real estate agent for any financial advice when it comes to getting a loan. If they're worth their salt, they will send you directly to their preferred lender who then knows what to tell you. But don't take advice directly from a real estate agent. Um, so um, sorry, I went on my little tangent there. I forgot my what I was saying. Um, excuse me. Um let someone take a look at your tax returns uh just to make sure exactly what you need to do to get ready to buy a home next year or whenever you're ready, um, if you want to do the fully documented route. Obviously, this show is supposed to be about not fully documented, um, but that's always the cheapest route if we can make it work. It requires the less of a down payment, it has better interest rates, better terms. So, you know, if you can go that route, always, always, always try that first. You know, I have people call me all the time. Well, I'm self-employed, you know, you know, taxes, you know, I'm trying really hard to hide all my money, completely appreciate that. Let me see your taxes anyways. And then from there, I can say, here's what we need to do to go fully documented, and here's your other options. Uh what you claim at the end of the, at the end of the day on your tax return isn't necessarily what we use for your qualifying. There's uh some things that we can add back into your income, like depreciation or mileage. So it's always best to have someone who knows how to actually properly calculate income to look at it for you.

SPEAKER_00 4:55

Okay. So if you could uh maybe expand a little bit more on the key differences, the variables or the two different types, the fully documented versus not documented.

SPEAKER_01 5:07

Well, the main, like I just said, the main difference is down payment. When you do a loan program or obtain a loan program that does not fully verify income based on what you pay to the IRS, um, you're always gonna requ it's always gonna require a higher down payment. Okay. And the reason for that is um mortgage insurance, mortgage insurance did not exist before the 90s, I believe. For some reason, 93 is sticking in my head. I started in this business in 98. So mortgage insurance has always been a part of my real estate life. Um, so mortgage insurance is a really awesome tool, which people think it's this ugly little redheaded stepchild that they don't want to pay. It is not for in most cases, it's not. It's a risk-based insurance that insures the lender against your loss if you choose not to pay them. Okay. So if you're putting 3 or 5% down, anything less than 20%, they require you to pay mortgage insurance. And the reason for that is your mortgage insurance, um, I'm sorry, the 20% mark, that's what they determine. The mortgage companies determine if you foreclose, it's gonna cost them that much money to go through the foreclosure proceedings and then remarket your home and sell it. And that's how much that they estimate they will lose during that process. That's why 20% is kind of the magic number.

SPEAKER_00 6:32

Yeah.

SPEAKER_01 6:33

So anything that's not fully documented cannot be insured by Fannie Mae or Freddie Mac. So therefore, they require 20% or more down, and then they they're what's called a niche product. Um they have, you know, direct investors and there's no insurance that is on those products. So of course the lenders want to make sure they're protected.

SPEAKER_00 6:53

Okay. And then just uh for a minute, I for for our viewers, just the interest rates, the difference there.

SPEAKER_01 6:59

Oh goodness, nope, nope. Uh that's too loaded of a question because it can absolutely change. Um, some of my not fully documented loans um are priced just as well as conformity. That's fantastic. Yeah, so it that's too loaded of a question. I can't answer it. Um, it depends on your credit score, it depends on the property type. Um so I mean, it can be anywhere from um a quarter percent higher to not verify income fully to a percent higher. It really just depends.

SPEAKER_00 7:28

Okay. Yeah, so uh we would you classify these as kind of more creative financing?

SPEAKER_01 7:32

I would say so. And I'm so happy that they have them. You know, um what happened in the 08 crash was not because necessarily wasn't because we didn't fully document income. But that is the first loan program that went away when we were on the path to recovery after that crash. Anything that was not fully documented completely went away. And it wasn't even that wasn't even the problem in a lot of cases.

SPEAKER_00 7:58

Let me ask you this, because if I remember correctly, so uh the initial introduction of those types of loan programs uh was really centered around the the small business owner. Oh, absolutely. That was the you know, to give them something to work with.

SPEAKER_01 8:13

Yeah.

SPEAKER_00 8:14

Um but if I remember correctly, during the whole housing meltdown and all of that, that was being utilized by people all across the boards that really shouldn't have been using it.

SPEAKER_01 8:25

100%. And like, you know, there were people, and not to say anything against Walmart greeters, but there were people who were Walmart greeters stating that they made $20,000 a month. You know, there just had to be some reasonable, you know, that and that's bad on us as lenders that we allowed stuff like that to get through. But what the biggest problem was it wasn't necessarily the income verification, it was the down payment. They allowed you to put pretty much nothing down and not verify income and not verify employment. So very low. Yeah. So therefore people had no problem just walking away because they didn't really have any skin in the game and their credit was going to recover in four to five years. So that was really the catalyst to it. Um, the really great program back in the day, um, if anyone's watching this uh that ever did loans, there was my favorite loan program was the countrywide fast and easy. Okay. The it was, you know, you we did verify employment in the fact that we verified where they worked, um, and then we stated their income, but we had to do a calculator or like an analysis of what that position usually pays. As long as it fell within that range, we were fine. Um, the best part of it is they had to put 20% down. Those loans did not foreclose most of them. You know, that was the difference. That was one of my favorite programs. Even if people could verify employment or income, excuse me, um, it actually, you know, was utilized widely because it was priced really well and it was very easy. Those, those were my favorite types of loan.

SPEAKER_00 9:52

I feel like a big component of that is you've got a buyer who's actually got skin in the game.

SPEAKER_01 9:56

Yeah, absolutely.

SPEAKER_00 9:57

In that scenario.

SPEAKER_01 9:58

That is 100% it. We can have all of these negative amortization loans that we used to have. We can have the no income, no asset, no employment, as long as you require a down payment. And because these lenders got greedy and these investors got greedy and they're like, well, not everybody's going to default on their loan. We're gonna go ahead and allow for these products to be utilized with nothing down. Well, 20% of defaults completely tanked the entire US economy.

SPEAKER_00 10:26

Yeah, yeah. And you know, in in all honesty, while uh I definitely have heard this narrative out there during that period of time where, hey, these, you know, these these darn lenders, right? Yeah, these predatory lenders. Um Yeah, they're absolutely 100% was that going on. Absolutely. Uh but I would contend, and I know because we've lived through it, uh the much larger number were the people who could afford their home, but the value had dropped so significantly that they just walked away. They didn't care. And you know why they walked away and why they didn't care wasn't necessarily just the value. They didn't have any money in. Right? Two, three per I'm sorry, three percent, like very minimal down pay. Like, most of them, yeah. Yeah, yeah. Most I mean, but you know, if you had one-fifth of the value of the home of your own money committed to it, you're probably a lot less likely to pull the trigger on that.

SPEAKER_01 11:20

Okay, so we got off topic, and I apologize profusely, but I just wanted to give a little history as to why these programs went away. Now they're back. So let's get back on track. Okay, so the first one um for a primary residence, we have uh obviously fully documented, but we also have what's called the bank statement loan. Now there's a couple variations of this. We can use bank statements, we can use uh 1099s, um, but they allow you to utilize 12 months of deposits as income for qualifying. This is a hundred percent for our self-employed borrowers. Um actually, you have to be self-employed to utilize this program, but it's wonderful because we don't require tax returns. And as long as your deposits, the way we calculate them, as long as they support what you're trying to do with regards to your new loan, they're incredible. But again, it requires 20% down. There are some lenders out there that will do it with 10% down, but your rate is going to be over 9%. So you just have to decide if that's worth it to you. Um, but the uh 20% down or more bank statement loans, I mean, they have been very successful. I've utilized them quite a bit. And um, they've really been uh a lifesaver for a lot of our self-employed borrowers who just do not want to mess with claiming the income they need to qualify and paying that much in taxes.

SPEAKER_00 12:42

And I gotta be honest, um given some of the programs that the money's been spent on, I don't know if I want to give the government additional money.

SPEAKER_01 12:50

Oh my goodness, that is also a different topic, and we're not gonna get off.

SPEAKER_00 12:53

No, we're not. We're not gonna get in the tangent, but yeah, yes. I I I feel like uh the average American can probably better spend their money than the government, and I'll leave it at that.

SPEAKER_01 13:00

Oh yeah, absolutely. Um, okay, and another option we have for a primary residence is kind of like the no income, no employment. Um it does require, again, 20% or more down, and it's only for a primary residence, but it does allow you to purchase a home with no income and no employment stated, nothing at all. So, you know, I have some people who do not have any source of income but have, you know, assets or have, you know, they know they're going to be able to make the payment because they have, you know, 10 siblings live with them, like whatever the situation is. Um, we also have a mortgage that is uh utilized for that. It is called the community mortgage. Um, that is what I consider our band-aid loan. So that's in my opinion, should be only 12 or 18 months just to get you in a position to be able to refinance and get you out of it. Because that one is more expensive because we're not stating anything. So that's for people who you know aren't self-employed and we have no way to verify any actual qualifying income.

SPEAKER_00 14:00

That seems interesting that they would even be offered.

SPEAKER_01 14:03

Yeah, it's it's kind of quasi-hard money, except for with much better terms. And it's not so it's a 30-year fixed and hard money loans, which supposed to be, I'm sorry, it's supposed to be only used for investment properties. Hard money loans are not supposed to be used on primary residences, which people do all the time. But um, they can only lend to entities like LLCs. Um, and those are typically six months to three year terms, and the interest rate's a lot higher. Ours is a 30-year fixed.

SPEAKER_00 14:30

Okay. So definitely better. There's not a a clicking uh a time bomb clicking. Correct.

SPEAKER_01 14:38

No, you can keep up for 30 years if you want to. Um, I definitely don't recommend it. When I do someone in that product, um, I always try to come up with an exit strategy just to make sure that because the interest rate as of today were mid-April. Uh, the interest rate on that would be mid to high eight percent. So it's not inexpensive considering the market right now is low sixes for a conventional.

SPEAKER_00 15:00

So you just said something that I absolutely adore about you. That that uh what's that? Having an exit strategy, right? So so what that means is uh Amy's the type of lender who's going to uh have a conversation with you come from a uh uh standpoint of curiosity. She wants to know as much as she can possibly know about your situation. It's gonna better help her tailor her advice to you. Absolutely. Um and and it's not, hey, uh let's just do this, give me your documents or whatever, any of that kind of stuff, and let's just get you a loan and then I'll never talk to you again. Yeah, not in order to answer. It's not that mentality. It's a hey, this will fit for this time period, but we really need to have a longer view, if you will. Absolutely on how do we get out of this? Um, and and what are the alternatives to get out of it. Right. Like so it's just it's just really understanding your situation and helping you achieve your ultimate goals.

SPEAKER_01 15:54

Yep, absolutely. So um the last product we have that does not require income verification is our DSCR. Definitely a crazy popular program right now. Debt service coverage ratio is what it stands for, but it is for people who um real estate investors. So if you um own or want to purchase an investment property, uh you can if you cannot go full documentation for whatever reason, um this is a lifesaver. So the only qualifying terms of the DSCR loan um is that you have to, the rent income that you receive on that property has to be within 75% of the mortgage payment. So um gosh, I hope.

SPEAKER_00 16:40

So it lets you run a 25% deficit.

SPEAKER_01 16:42

Yes, it does. Yeah. Now the interest rates higher if you do, if you can have a mortgage payment and your rental income be even, that's called a one DSCR, 1% DSCR. And then anything above that, you're gonna get the absolute best pricing, but it does allow you to go 25% below what re what you're receiving in rents for the mortgage payment.

SPEAKER_00 17:05

So it's tiered.

SPEAKER_01 17:06

Yes. Yes, it is. Yeah, and uh this is definitely one of my favorite products right now. I'm doing a ton of these. Um, and a lot of people utilize them. I have people that do qualify for full doc, and the documentation is so much less, uh, you know, especially for my self-employed borrowers. Yeah, it's so less cumbersome that they choose this product because the interest rate can be the same or you know, maybe an eighth point higher.

SPEAKER_00 17:32

So negligible, really.

SPEAKER_01 17:33

It's negligible, and it is definitely one of my favorite products.

SPEAKER_00 17:36

Yeah, who wouldn't want to go to the path of least resistance?

SPEAKER_01 17:39

I love it. Yes. I mean, obviously, you can always have the option of going full documentation, um, but it's really nice when you're not nitpicked to death for documentation.

SPEAKER_00 17:47

And investment only, correct?

SPEAKER_01 17:48

This one's only for investment properties, yes. And you can be a first-time investor. You can buy your first investment property utilizing this. Like I just talked to a gentleman last week. Um, he had somehow did something a few years ago shady with a group of friends that they bought these like three homes, and he ended up getting saddled with all of them and they're all negative equity, they're all upside down. Um, and he has like nine and a half, nine three, nine and three-quarters rates on these three properties. So he called me because he heard our radio show and wanted to see, hey, what can you do for me? Um, with using the DSCR program, which I cannot comprehend why the lender that did his initial loans did not offer this opportunity because he actually doesn't have a job. He doesn't have any income. Um so it's just a unique situation. He's just now starting a new business, so he can't qualify for anything else. He um, I'm saving him like $800 to $1,000 a month on each property. Now he got taken advantage of his first go round. So I'm not taking all of the credit for that, but still we're able to save him quite a bit of money because he's trying to, he was trying to sell the homes because his payments were so high. And I'm like, well, if you decide to keep the homes, we can get your payments down to this. And he's like, up, that's a no-brainer. He's like, if I had known this initially, I would have never gone the other route. I would have never tried to sell the homes. That saved him from being, you know, having to get rid of the properties.

SPEAKER_00 19:11

So I'm gonna ask you to try to speculate a little bit, right? Why would a lender do that?

SPEAKER_01 19:17

I can't understand. I don't know.

SPEAKER_00 19:19

Do would I get paid more? I mean, what was the what would be the incentive behind it?

SPEAKER_01 19:23

They took the maximum comp that they are allowed. It's a broker. Um, so they're allowed to make up to a certain amount. Um, so they definitely made bank on all of those loans that they did for him. Um and they were all his buddies, so he didn't question anything. And now he is settled with three properties that he cannot sell and he cannot afford. And now he's gonna lose everything.

SPEAKER_00 19:45

How did the how did the the buddies or the other investors that went in on it with him get out of?

SPEAKER_01 19:49

They all back they they just told them they're your houses now and they all signed off. I don't know. That's a unique situation that doesn't typically happen. But you know, when I was talking to him and he's a young guy in his late 20s, um, and pretty savvy. You know, he just he came into a lot of money and he wanted to avoid paying a bunch of capital gains on it, so he parked it in real estate. He just listened to the wrong people and they had him do, you know, not super awesome investments in a super awesome area um for what he was trying to do. And then he's just struggled ever since and he's only had him for two or three years. That's a shame. Yeah. So who you work with matters. And um, you know, definitely get multiple people's advice uh that are in the business.

SPEAKER_00 20:29

Sure.

SPEAKER_01 20:30

Uh, not just your buddies who everybody just wants to make money and they're not really worried about the end result or the outcome. Uh, I was I really did feel for him, but I was happy I was able to give him a solution that could save his portfolio, really, because right now is one of the worst times to try to sell.

SPEAKER_00 20:47

You're talking what, $2,700 to $3,000 a month in savings, like in that ballpark in that range. Yes. That's what I'm saying.

SPEAKER_01 20:54

Over three $600,000 houses. They were not million-dollar houses. That is what made me so sad. Almost 10% in his rates. That's he even said, like, you're gonna be mad when I tell you this. Yeah.

SPEAKER_00 21:08

Oh man. Uh does he still talk to these buddies?

SPEAKER_01 21:10

Um, yeah.

SPEAKER_00 21:12

I'd imagine I wouldn't. I wouldn't.

SPEAKER_01 21:13

So the agent that's trying to sell the home is the same agent that sold him the home in the first place, and they're all buddies. And it's okay. You know, he's the one that signed on the bottom line, like, you know, buyer beware.

SPEAKER_00 21:24

Uh no. No. Like your agent should protect you.

SPEAKER_01 21:29

I know.

SPEAKER_00 21:30

Right? Uh against yourself. I mean, we you just we just talked about in a different episode about the whole emotional this and that and not being emotional. Um that's what the agents are for, right? And make sure you're not making these kind of I mean, that's ridiculous.

SPEAKER_01 21:43

I know. It's it really made me sad for him. But um we're gonna save it. We're gonna let him keep his houses and he can move on to his next venture and not be bleeding money. Yeah, over three homes, I think he was paying twelve thousand dollars.

SPEAKER_00 21:57

Holy hell. But that is awful. That is awful.

SPEAKER_01 22:01

I know. $600,000 properties.

SPEAKER_00 22:03

Man.

SPEAKER_01 22:04

Yeah. And one of them is running like a rehab facility out of one of the houses. And he's like, I have to keep them there because they're the only ones that actually pay. I know. It's it's crazy. Yeah.

SPEAKER_00 22:14

Yeah, I'm glad I met him.

SPEAKER_01 22:15

No, but I mean, I'm super proud of him at his age to, you know, know that investing in real estate was such a, you know, great idea. I just feel like he did get poor advice and poor service. But that's okay. You know what? You live and you learn. Yeah. So, okay. So, in any ways, to recap, uh, we have several products that are available uh that do not require full income verification if for whatever reason you can't go that route. Every ready yeast situation is unique. And just because you know you don't claim a million dollars to the IRS doesn't mean you can't buy a house. So we definitely would like for you to reach out to us and see what we could do for you. You can find us online at keeping it realistate withamieb.com. It has all of our contact information on there, and we are available nights, weekends, whenever you need us to answer questions or help in any way that we can. Thank you so much for joining us, and I hope you have a wonderful rest of your day.

SPEAKER_00 23:06

Bye, everybody.