No proof of income mortgages in 2014 in the US explored, with possible solutions
Mortgages with no proof of income still available in 2014?
What is a self-certified mortgage?
This is a mortgage where, for whatever reason, there is no wish, or possibilty, to declare to the mortgage underwriter precise earnings. The person taking out the mortgage wants to 'self-certify' that there is enough money earned to easily cover the mortgage payments.
Unlike a regularly employed person, who has a fixed and stable income, and therefore an easy way to prove it, through wage slips, etc,the self-employed person simply may not have this documentation.
Earnings for the self-employed may be heavily seasonal, or otherwise sporadic, and whats more most freelancers take full advantage of claiming against tax. As they should, else there's not really any reason to be self-motivated, right?
But since NET income (after tax) is the high-street lender consideration as to whether money will be lent, this can be a huge problem.
Typically, mainstream mortgage lenders and underwriters want to see two, perhaps three or more years of audited accounts before even considering the self-employed. This means that if there are any mitigating factors, like being newly self-employed, or having reinvested a large portion of what would otherwise have been income back into the business, then a mainstream mortgage may not be available, period.
Why wouldnt the mortgage lender be satisfied with a declaration of earnings?
There are good reasons, and bad reasons for not being able to show how much money has been earned! Bad: trying to borrow more than can be easily afforded to pay back whilst on a predetermined, fixed income (e.g. 'employed status') -- this has been dubbed a 'liar loan' and is cited as one of the main reasons for the global banking crisis.
What happened was: people who were really employed and could not, on paper, as well as literally, afford the repayments, were encouraged to borrow money on a path that was originally intended for the self-employed only. This is now considered an abuse of the banking system and has been regulated against.
A possible good reason: There is true self-employed, contracted or freelancer status, with plenty of money coming in, but this makes the production of pay-slips and other proof of earnings that the banks require more difficult to produce.
Are Self-Certified Mortgages still available?
There are some mortgage products available, normally through mortgage brokers, that may suit you IF you have a truly variable income. Self-cert products by name have been generally stopped. Continue reading for one possible solution in the US...
There's a reliable, but unpredictable income. Anything still out there like a self-cert mortgage?
If you are NOT on a fixed income, ie NOT on an employed salary, you may be able to find a mortgage broker, online or otherwise, who can help you. These types of mortgages are referred to as 'contractor mortgages' or 'freelance mortgages'
A reliable way of proving earnings history will still need to be provided, and, increasingly, the lender will look to the taxation authorities as to what your net profit has been over the last two to three years. :(
Audiited accounts by a certified accountant also count as genuine proof of income for the self-employed, often , again, for two to three years.
Note that 'freelancer' or 'contractor' mortgages often, but not always, incur a higher interest rate than would one for an employed person. In the eyes of the lending institutions (the banks!) there is a greater risk than with someone with a reliable income.
Note also that the initial fee paid, though it can be added to the mortgage, needs to be taken into consideration as it will llikely be more than a high-street lender would get away with charging for a mortgage to be set up.
Is there any other way to get a mortgage with no proof of income in 2014?
Enter the buy-to-let (BTL) mortgage
Look for a less regulated mortgage market in the US to get what is needed. Though it may not be an answer, if you are NOT a first-time buyer, or if there is a favourable loan-to-value ratio on the property being looked at for purchase (ie you have more than 40 per cent as a down payment against the new property, you may be able to find a mortgage broker that will arrange a buy to let mortgage to cover it.
Buy to let mortgages are currently not as heavily regulated as homeowner mortgages, and, although there may be few mortgage agents willing to apply in this way, it certainly is a possible route to find the loan to cover a new mortgage, subject to the conditions mentioned above. Because regulation is less, the chances of being accepted for a BTL mortgage are greater, because the lender may be prepared to accept the lettable value of the property to be a consideration in affordabilty of the monthly mortgage payments.
Of course this mortage option only really applies if there is absolute certainty that the monthly payments are afforable, else you'll have to move out of your new home and let it out to cover the mortgage payments, with the usual risk of repossession.
Responsible lending criteria means that you *may* still be asked for proof of income, so its vital that there is an excellent credit rating in place, but it is less likely, because the repayment vehicle is based on the potential rental income on the property, rather than the applicant's earnings.
Can I live in my BTL property?
Circumstances can change such that you can inform the lender that you now live in the Buy-to-let mortgaged property, so yes. Just be certain, again, that the monthly payments can be met, without skipping a beat!
Buy-to-Let mortgage fallback plan
If living in buy to let mortgaged property, based on the fact that is affordable NOW, there needs to be a plan in place 'just in case' something happens to income. You basically need somewhere to go in the event that you really do need to let out the property. So make sure you can: parents or friends can help this to be planned for, way in advance, 'just in case'.