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 growing in 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.
What Are No-Ratio Mortgage Loans?
This is a mortgage product that 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 that goes to paying their monthly debts. Normally, mortgage lenders require a debt-to-income ratio of about 50%, which not everyone can attain. This holds especially 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 a large amount of unreimbursed expenses which end up reducing their taxable income and the amount of tax they owe. 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 from you.
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 do find the relaxed documentation requirement very beneficial. So are the salaried borrowers with a side job where they earn additional income that may need to be more readily documented.
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 income verification is needed for you 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 go up to 2.5 million USD or even higher. This loan is available in all 50 states of the United States included on Washington DC, Puerto Rico, and the U.S. Virgin Islands.
Interest-Only No-Ratio Mortgage Loans
There are no interest-only terms with this loan 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 will need to have a down payment of at least 10% to 40% percent of the home value or the home’s buying price. You will also need to 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 ability to repay the loan. 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. 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.
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. 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.
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.
Lastly, it would be best if you considered 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 is based on the borrowers 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 is not for everyone. No-ratio mortgage loans benefits 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 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 with 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 for you.
How Do I Apply and Get Pre-Approved For No-Ratio Mortgage Loans
The best way to find no-ratio mortgage lenders is by either getting referred or online. Gustan Cho Associates are mortgage brokers and is 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 which includes many non-QM lenders who have a niche on no-ratio mortgage loans. If there are any mortgage loan program in today’s market, you can be rest assured Gustan Cho Associates has it for our borrowers. In the event if we do not, we can get the wholesale mortgage lender in our partner network without a 72 hours.
If you have any question about no-ratio mortgage loans or any other mortgage topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at firstname.lastname@example.org. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.
December 25, 2022 - 6 min read