Qualifying for a mortgage loan can be challenging at times, particularly for individuals who have a tough time verifying their income. Take someone who is a wholesaler (self-employed), for example, they may have great credit and even enough money for a downpayment, but if they don't have tax returns, 1099s, bank statements or 4506 documentation, they may not be considered qualifiable.
Borrowers nationwide, whether a wholesaler, new business owner, or investor, looking for alternative funding options will be happy to hear that theycannow buy or refinance a home with much more flexible qualifying requirements through Low-Doc Mortgages.
What is a Low-Doc Mortgage? A low-doc mortgage is a flexible mortgage loan for investors that requires less stringent approval and seasoning requirements.Investors can use the loans to purchase or refinance 1-4 unit investment properties. But the best part...income verification and tax documents are not required. Additionally, loan options can be customizable based on your exit strategy.
What are the Advantages of a Low-Doc Mortgage?
Low-doc mortgages have some great advantages, including:
- Requires low documentation in order to get the funding required for your investment property. This includes having less than stellar credit scores (640+). - Perfect for the buy and hold investor that wants to refinance out of a hard money loan into a less-expensive mortgage. They're also perfect for wholesalers who don't have documented income. - Great for refinancing properties in which you don't have six months of reserves in the bank.
Who is Eligible for a Low-Doc Mortgage? To qualify for a low-doc mortgage, you must be able to provide a credit report (focus less on your scores and more on retrieving your credit report). Be prepared to submit 2 forms of ID and your 2 most recent bank statements. If you can't quite make this work, no worries. To help, a co-applicant's income can be added to the total household income (co-applicants must be W2 wage earners).
Great candidates for a low-doc mortgage include:
- Real Estate Agents - Contractors - Freelancers - Entrepreneurs - Small Business Owners
If you’re worried about not being eligible for a low-doc mortgage as an investor, there are a few steps you can take to increase your likelihood of qualifying. While it’s easy to say you need “good credit” and a “low debt-to-income ratio,” getting to that point may take some time.
So here are some steps you can take to increase your chances of qualifying for a low-doc mortgage:
- Reduce your tax deductions - Keep separate business and personal bank accounts - Use tools like Quickbooks to track and manage income and expenses - Consider a larger down payment (tapping into your IRA or 401(k) may be a smart, long-term solution, but just make sure your consult your financial adviser first) - Lower your debt load - Register and license your business