The best interest rates are generally for conforming loans. A conforming loan is one that adheres to FNMA’s strict lending guidelines. Conforming loans generally require strict proof of income, assets and other debts. If, for example, you cannot prove income to a lender, whether it be you are self-employed for a short time or can’t otherwise prove income, there are non-income verification (NIV) loans.

NIV loans are not just for people that are self-employed. In fact, I often use NIV programs because the loan process is faster. Because I have many rental properties, documentation for the loan process becomes more and more cumbersome each time I apply. The NIV loan makes the process smoother and easier.

NIV loans (also known as “stated income”) require less documentation than traditional conforming loans. Lenders often advertise these programs as “no doc” loans, meaning the borrower does not have to come up with any documentation other than a credit report and a loan application.

Some loans are called “no ratio” loans, in that you don’t have to justify your total debt (mortgages plus other continuing obligations, such as car loans and student loans) compared to your income.

Few, if any loans are true “no documentation” loans. Most of these offered programs are either “bait and switch” tactics; the lender says they don’t need documentation, but when the loan is being processed, the lender will ask for more and more documentation. Often times the lender will see some red flags that trigger the additional inquiry.

The best defense to these tactics is a good offense; speak to your lender or mortgage broker up front. Identify documentation issues up front, educate the lender about your finances and be truthful. The more a lender suspects you are hiding something, the more documentation the lender will ask for.


SIDE NOTE: Watch What You Say on NIV Loans.
Just because you don’t have to provide documentation
of your income to the lender, it doesn’t mean you
have a license to lie. Most lenders will make you
sign an authorization to release federal income tax
returns. They may not check now, but if your loan
goes into default, they may obtain copies of your
tax returns. If the income you report on your loan
application is way out of sync with your tax
returns, you may be answering to loan fraud charges.


Of course, there is a price to pay for doing an NIV loan; the interest rate is generally higher for NIV loans than for full documentation loans. The reason for the higher rate is obvious – the less documentation you provide, the more risky you are as a borrower. However, the more aggressive portfolio lenders, such as Countrywide and Washington Mutual, are now offering more competitive rates on NIV loans to borrowers with high credit FICO scores.

by Attorney William Bronchick