Many people work in industries that don’t offer a consistent paycheck from an employer. Sooner or later, this raises an issue: “How will i obtain a mortgage if I make the majority of my money through cash?”
You’ve probably heard problem reports concerning the process of getting approved from your friends who operate in salaried 9-5s or the service industry. So, what’s it going to be like for you personally?
The process is slightly different if you’re paid cash or receive earnings in an unconventional way. However, you may still qualify for no-doc mortgages.
We’re here to explain all you need to learn about alternative income verification loans and how you can show proof of income if you’re paid cash.
What is an alternative income verification loan?
Suppose you’re wondering, 'How will i show proof of income if I get paid cash,' alternative income verification loans might be what you need. Also known as no-income verification mortgages, these financing options require different documentation than a traditional mortgage. They are preferred by lots of people employed in the money economy (who frequently distrust institutional regulation of finances) or in unconventional roles such as seasonal work.
Say you work as a server. The majority of your earnings consists of tips, and you stop at the grocery store to complete your shopping at the end of a busy shift. You have to pay cash. How much did you make? It might be hard to track your earnings, and may be even more difficult to describe to a large financial company.
However, using the correct kind of alternative income verification loan, it’s possible to prove you are able to take out financing regardless of your cash earnings.
Types of Alternative Income Loans
Below we’ll detail the 4 types of loans you may seek. We’ll also cover who might benefit from each kind of loan.
Stated Income, Stated Assets
This type of arrangement is helpful for small business owners whose assets may be tangled up in business account. This kind of loan requires no documentation of either income or assets but does require you to provide a figure for – the lender will accept the figures you provide.
This type of loan used to be very popular, but the passage from the 2010 Dodd-Frank Act prohibited this kind of arrangement for owner-occupied properties. However, they're still used by property investors.
Stated Income, Verified Assets
In a SIVA arrangement, you agree for a lender to verify your overall assets, however, you only give a stated figure of your annual income. This is useful in case your salary is difficult to document – for example if you work with cash and aren’t the very best at record-keeping!
No Income Verification, Verified Assets
In this situation, a lender verifies your assets just like a SIVA loan. However, you don’t have to provide any documentation or statements regarding your income – the agreement implies that income isn’t discussed whatsoever.
This appears like a small difference, but NIVA loans are useful in some instances. Retirees often make use of this type of loan – documentation will need to be presented to verify assets for example pension statements or perhaps a 401(k).
No Income Verification, No Asset Verification
This type of mortgage has no requirements for documentation of either income or assets. Say your employer relies overseas as well as your income would go to a foreign bank account – this makes it extremely difficult to verify for any lender. Like SISA loans, these are now only available for property investors rather than live-in homeowners.
Who may need an alternative income verification loan?
Self-Employed Business Owners
Self-employed individuals for example tradespeople who work mostly with cash can usually benefit from this kind of arrangement, as they might have substantial assets, but income can be difficult to keep track of. In general, if you're able to provide proof of assets, you need to opt for a SIVA or NIVA loan. Retirees can also borrow in this way.
Service Industry Workers
Waiting and bar personnel will also be a great example of who could benefit from a SIVA mortgage. Your tips bulk up your bank balance (assets).
Property Investors
Domestic and foreign property investors can benefit from SISA and NINA loans, as they eliminate difficulties such as verifying foreign accounts and translation work.
Who can qualify and how?
It’s simpler to get alternative income verification loans over traditional home loans for many people. However, you still need to meet several criteria for approval.
Large banks typically offer these loans with enough cash reserves to lend directly. Most lenders need approval from Fannie Mae & Freddie Mac to approve loans due to the disastrous lending that caused the 2008 economic crisis. You will have to prove to these lenders that you're eligible since they’re taking a risk lending you the money.
Here are some factors of people who can use with this loan:
- High account balance and savings. Even if you receive most of your earnings in cash, you must still reveal that you can afford to keep up with the payments. These loans usually have significantly higher interest rates than conventional mortgages, and deposit tend to be substantially higher.
- High credit score requirement (700+). No-income verification mortgages often require a better credit rating than traditional mortgages.
The Bottom Line
Alternative income verification loans make the perfect option if you’re unlikely to become approved for any conventional mortgage. As always with borrowing, you need to rigorously assess your means before investing in borrowing: never do something just because you are able to.
Consider your circumstances and which type of no-doc mortgage might suit you should. Whether you’re determined by unaccountable cash like tips for your earnings or you just struggle to keep track of paperwork, contact the team at Associates Home Loan to find out more.