No-Ratio Loans: Basics and Benefits
When it comes to real-estate investing, traditional mortgages simply don’t work much of the time. Many real-estate investors and small business owners have difficulty quantifying their income and worthiness as a borrower using traditional measures like tax paperwork, W-2s, and debt-to-income ratio (DTI). For many of these would-be investors, we at JZ Mortgage Services, Inc., recommend no-ratio loans. Also known as no-income-verification loans or stated income loans, these loans aren’t qualified using traditional income documentation. Read on to learn more about no-ratio loans and contact us in Bradenton, FL, to see if you qualify.
When Traditional Financing Falls Short
There are a few reasons self-employed applicants and business owners have difficulty quantifying their income on paper. Some claim several deductions at tax time, which means their reported income is lower, while others have fluctuating or seasonal income that may seem unsteady. Those who are just starting out with a small business may also have a high DTI for the time being as they have several up-front expenses to take care of while launching their businesses.
Instead of supplying paychecks, W-2s, and other documents to verify their income and DTI, no-ratio loan applicants undergo a different qualification process. Typically, lenders request a credit score check and may ask for a list of assets and possibly profit-and-loss statements from the business. This is a great benefit to self-employed people and small business owners, who are interested in investing, but who may not get qualified for a traditional loan or not qualify for as much as they desire to purchase an investment property. Because so much weight is placed on the credit check, most borrowers must have great or better credit to qualify.
Other Important Information About No-Ratio Loans
No-ratio loans are considered Alt-A loans, which means they’re riskier to lenders than prime loans. Because of this, lenders typically require a larger down payment on an investment property, usually around 30-40%. Conventional, income-verified loans, conversely, may require just 20% down. No-ratio loans may also have higher interest rates than conventional loans. If they are using the property as a rental property, most investors choose to refinance their no-ratio loans to get a more competitive late once they have more equity. Investors who fix-and-flip homes, conversely, usually sell property after renovations are complete, so they are less worried about paying high interest rates in the long term.
Financing Your Investment Dreams
If you’d like to learn more about no-ratio loans, contact JZ Mortgage Services, Inc., in Bradenton. Our qualified mortgage professionals can offer you quotes for no-ratio loans and can offer more helpful information about starting off with real estate investing. We also have several real estate colleagues who can help you find amazing properties for long-term success.