In this blog, we will cover what no-ratio mortgage loans are. We will discuss how no-ratio mortgage loans work and what types of borrowers benefit from no-ratio mortgage loans. No-ratio mortgage loans are a type of non-QM loan where the lender does not factor in the borrower’s income. No-ratio mortgage loans mean the debt-to-income ratio does not matter what you need to know about no-ratio mortgage loans.
No-ratio mortgages can be a great option for those looking to purchase a home but want to avoid applying for a traditional loan.
These loans are gaining popularity as they give borrowers an easier way to get financing without proving their income or assets. However, there are some key points potential borrowers should know before considering this type of mortgage. We will tell you all about it in this article, plus everything you need to know about no-ratio mortgages. In the following paragraphs, we will discuss no-ratio mortgage loans.
What Are No-Ratio Mortgage Loans?
This mortgage product doesn’t consider your debt-to-income ratio for you to qualify. The debt-to-income ratio, or DTI, shows the percentage of a borrower’s income paying their monthly debts. Normally, mortgage lenders require a debt-to-income ratio of about 50%, which not everyone can attain. This holds especially true for self-employed borrowers, as not all can provide traditional income and asset documentation. These individuals’ incomes fluctuate significantly, meaning that the income may not necessarily show up on a tax return.
Type of Borrowers That Would Benefit From No-Ratio Mortgage Loans
We also have to mention that these borrowers have a lot of deductions. Many self-employed, independent contractors and 1099-wage earners have many unreimbursed expenses, reducing their taxable income and the amount of tax they owe.
Individuals with incomes that are a bit harder to document can qualify for these loans – and these are individuals who would never qualify for conventional mortgages.
With all this, the lender cannot accurately picture a borrower’s earning power. This is what inspired the introduction of no-ratio mortgages to cover these individuals. You don’t need to verify your income when applying for these mortgages. And given that you don’t have to prove your DTI ratio, only a few documents are required.
How Lenders Process and Underwrite No-Ratio Mortgage Loans
While conventional mortgages rely on tax returns, W-2 forms, or paystubs, lenders offering no-ratio mortgage loans focus more on the borrower’s down payment, credit, and overall financial record.
Self-employed individuals, business owners, independent contractors, and 1099-income wage earners find the relaxed documentation requirement beneficial.
So are the salaried borrowers with a side job earning additional income that may need to be more readily documented. No-ratio mortgage loans are available in all 50 states of the United States, including Washington DC, Puerto Rico, and the U.S. Virgin Islands.
Features of No-Ratio Mortgage Loans
There are a few features that make no-ratio mortgages interesting for the borrower. These features include no federal income tax returns or verification needed to qualify. The loan-to-value ratio can be as high as 75%. Asset seasoning is not necessary for you to be approved for a loan. Although it depends on the lender, no-ratio mortgages may increase to 2.5 million USD or even higher.
Interest-Only No-Ratio Mortgage Loans
This loan has no interest-only terms unless you are buying investment properties. There are no restrictions when it comes to cash-out financing. Unlike other mortgages, up to 100% of your funds may come from gifts. Asset verification is simple as the lender is only interested in the earnest money deposit check plus a one-month bank statement.
What Are The Requirements For a No-Ratio Mortgage Loans?
To qualify for a no-ratio mortgage, you must have a down payment of at least 10% to 40% percent of the home value or the home’s buying price.
You must also deposit an amount covering the mortgage payments for at least twelve months.
The lender will also examine your income stream, where you must be self-employed for at least two years. You must have valid documentation proving the same. You will also need to have an excellent credit score if you are to qualify for a no-ratio mortgage.
What Are The Benefits of No-Ratio Mortgage Loans?
The first benefit has to be that it doesn’t require income or debt-to-income ratio verification for you to qualify. Instead, the lender is more concerned about your credit history and assets, which helps determine your loan repayment ability. This means that borrowers with a higher debt-to-income ratio can qualify. Secondly, the fact that this mortgage requires fewer documents to process means that the processing time is minimal, making it ideal for investors looking to close a quick deal.
Factors To Consider About Non-QM Loans
If you are thinking about taking out a no-ratio mortgage, there are a few things you need to consider. For starters, you need to consult a mortgage broker who will guide you throughout the process of finding and applying for the mortgage. Remember, mainstream banks don’t offer these loans, so you will need help finding a lender who does.
How is Income Calculated on No-Ratio Mortgage Loans?
Secondly, even though income is not considered when applying for a no-ratio mortgage, lenders will still look at overall financial stability and ability to make payments. This means that even if approved, it is essential that borrowers have enough money coming in each month to cover their housing costs plus all other living expenses without becoming overextended financially.
The right mortgage broker could help ensure you get the best terms possible, and if you are a first-timer, they will guide you through the mortgage industry, ensuring you are correctly informed.
Lastly, it would be best to consider the interest rates that come with these loans. The truth is that no-ratio mortgages have adjustable interest rates, often higher than conventional loans. The reasoning is that you will have to compensate the lender for the risk they assume by giving you a mortgage without proper verification of your income.
How Much Down Payment Is Required on No-Ratio Mortgage Loans?
No-Ratio Mortgage Loans are very easy to qualify and process. The down payment requirements are based on the borrower’s credit scores. A 10% to 40% down payment is required. You can qualify for no-ratio mortgage loans with a 10% down payment if you have a 740 credit score or higher. The minimum credit score required on no-ratio mortgage loans is 640 FICO.
Is No-Ratio Mortgage Loans The Best Loan Option For Me?
No-ratio mortgage loans are not for everyone. No-ratio mortgage loans benefit homebuyers who do not have consistent income, self-employed borrowers, 1099-wage earners, and other borrowers who cannot qualify for a mortgage due to not having the traditional qualified income required by banks and lenders. Federal Income tax returns are not required.
How Hard Is It To Qualify and Get Approved For No-Ratio Mortgages?
No-ratio mortgages make qualifying easier because income and debt ratios are not considered when approving a loan. Borrowers can only qualify by providing proof of employment or other financial information, which makes them appealing to those with limited or difficult-to-verify income sources.
The downside is that lenders usually require higher down payments and interest rates than a conventional loan since they cannot verify the borrower’s creditworthiness.
Furthermore, borrowers may pay more over time due to the higher interest rate on no-ratio loans. Considering the advantages and drawbacks is important before deciding if this is the right option.
How Do I Apply and Get Pre-Approved For No-Ratio Mortgage Loans
The best way to find no-ratio mortgage lenders is by getting referred online. Gustan Cho Associates are mortgage brokers licensed in 48 states, including Washington DC, Puerto Rico, and the U.S. Virgin Islands. Over 80% of our clients are borrowers who could not qualify at other mortgage companies because of the lender overlays or because the lender did not have the mortgage loan option best suited to them. Gustan Cho Associates is a dba of NEXA Mortgage, LLC.
Best Lenders For No-Ratio Mortgage Loans
NEXA Mortgage, LLC has over 210 wholesale mortgage lenders, including many non-QM lenders with a niche on no-ratio mortgage loans. If there are any mortgage loan programs in today’s market, you can rest assured that Gustan Cho Associates has them for our borrowers.
We can get the wholesale mortgage lender in our partner network within 72 hours if we do not.
If you have any questions about no-ratio mortgage loans or any other mortgage topics, please get in touch with us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.
