Buying a home is a very important investment for most people

Buying a home is a very important investment for most people. It takes a great deal of commitment, and often requires a good-sized down payment. Getting approved for a conventional loan can take a long time and can be difficult for some people. Another option besides a conventional home loan is the no income verification loan.

With a conventional loan, the applicant must verify their income by getting verification of employment directly from the employer, as well as obtaining copies of the most recent pay stubs and W-2 forms. Sometimes the applicant is also required to provide copies of the previous year's tax returns. For a person who is self-employed, it can be difficult to prove a steady income because there are not any pay stubs or W-2 forms that can be submitted. A no income verification loan doesn't require any of these methods of income verification. Instead, the applicant qualifies by stating their income on the loan application. With a high equity on a refinance, there may not even be the requirement for stating income.

The no income verification loan requires less documentation than the traditional loans, and many people may wish to go this route. However, it is important to note that with this type of loan the applicant must put at least 10% down on the purchase of a home and may be required to purchase mortgage insurance. If it is a refinance, there must be at least 10% equity left in the home. In other words, the loan amount cannot be greater than 90% of the value of the home or property that is being refinanced. With a conventional loan, a person may be able to get a loan with only 5% or even 3% down payment

Another important thing to note is that the no income verification loan is only used for people with a stellar credit score. If you have late payments or other hits on your credit score, you will not be considered for this type of loan. With a conventional loan, some late payments and hits may be allowed under the underwriting guidelines.

People who can qualify for standard loans may want to go that route even though there is more documentation and it will take longer because the interest rates on an NIV loan are generally higher than on a conventional loan. In fact they may be as much as 1 1/2 percent higher. The reason for the higher interest rate is because there is more risk to the lender. They have no guarantee that your income is steady and are taking a risk that you will be able to make your payments. However, if you are in a time crunch and don't care about the interest rate, you may still want to look at the NIV loan. With less paperwork they can usually go through more quickly.

Another point to remember is that there may be limited loan programs available with the NIV loan. Even though it is called a no income verification loan, there are still some types of income that will need to be documented. These are passive income sources such as interest income, rental income, trust income and child support.

As you can see if you are a self-employed person who may find it difficult to document their income, one of the best ways to get a home loan is with a no income verification loan. By understanding how it works, you will be able to decide if it is the right loan vehicle for you. If your credit score is not quite at the top, you may want to wait for a few months while to do the necessary things to bring it up so you can qualify for this type of loan.

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