New No Tax Return Loans | Valor Lending Group
Self-employed individuals use the IRS tax code to write off expenses, however by doing that their income is much lower than the amount needed to qualify for a loan.
Below you will find multiple loan options that would work for self-employed individuals that are unable to use their tax returns to qualify for a mortgage loan.
What you will learn:
- Rental Loans
- What a Debt Service Coverage Ratio is
- What a No Tax Return investment property looks like
- Debt Service Coverage Ratio (DSCR)
- Defined
- Principal & interest
- Taxes, Insurance & HOA Dues
- Example
- Purchase & Refinance
- Personal Credit
- Pros and Cons of No Tax Return investment property loans
- Debt Service Coverage Ratio (DSCR)
- Rental Loan Highlights
- Bank Statement Loans
- What a Bank Statement Loan is
- Why you would want to use a Bank Statement Loan
- The Difference
- Qualifying
- What does a Bank Statement Loan look like
- Self-employed Requirements
- Bank Deposits
- Business Bank Statements
- Personal Bank Statements
- Income, Debts & Credit
- Down payment, Rates & Costs
- Jumbo Bank Statement Loans
- Commercial Bank Statement Loans
- What Bank Statement Loans are NOT
- Finding the best Bank Statement Loan lenders
- Pros and Cons of Bank Statement Loans
- Bank Statement Loan Highlight
- What you will need for submission
- Stated Income Loans
- What are Stated Income Loans
- Why you would want to use a Stated Income Loan
- The Difference
- Finding the best Stated Income Loan lender
- Stated Income Loan Highlights
- What you will need for submission
- Recap on Valor’s Loan Products
- Other Loan Programs we Offer
New No Tax Return Loans
California Rental Loans | Valor Lending Group
Rental loans help real estate investors buy and hold for rental income or fix and flip for a quick profit.
Today rental loans have competitive financing for residential properties and they have Cash-Out refinancing available for investment properties that are currently owned.
The National Association of Home Builders (NAHB) conducted a recent examination on rental housing using U.S. Census data.
They found that 86% of rental properties in the U.S. are single family residences; two-to four-unit residences being the next most common type of rental property.
Valor Lending Group has multiple funding sources for these types of rental property loans.
We also have the very best communication, rates, and turn times.
What is Debt Service Coverage Ratio (DSCR)?
The DSCR = Properties Current Rents / New PITI (principal, interest, taxes and insurance) monthly Payment. If your property is collecting rents that covers your current PITI Payment your property debt services aka your properties rents cover your total mortgage payment.
Example of DSCR Calculation: New P&I = $1,851.26 + 758.53 taxes + $147 insurance = $2,756.79 PITI | $3200 Current Rents/$2756.79 = 1.16 DSCR
DSCR (Debt service coverage ratio) is one of many financial ratios that lenders assess when considering a loan application. DSCR is an important ratio that helps indicate to the lender whether or not you will be able to pay back the loan with interest. A ratio over 1 is good, and the higher the better.
The minimum DSCR a lender will demand depends on macroeconomic conditions. If the economy is growing, lenders may be more forgiving of lower qualifying ratios.
Here’s how to interpret your DSCR:
- DSCR < 1: You have negative cash flow. You don’t have enough rental income to service the debt (New PITI payment).
- DSCR = 1: You have exactly enough rental coming in to service the debt (New PITI payment), but you don’t have an additional cash cushion.
- DSCR > 1: You have positive cash flow. The higher your DSCR, the more income you have to service the debt (New PITI payment).
What Does A No Tax Return Investment Property Loans Look Like?
1) DSCR – Debt Service Coverage Ratio
(a) Defined
The Debt Service Coverage Ratio, or DSCR, is how investment property lenders qualify borrowers for a loan. In essence, it is a comparison of the property’s monthly rental income versus monthly expenses.
DSCR provides a basis for determining the maximum loan amount an investment property can withstand. The higher the DSCR, the bigger the mortgage the property qualifies for. The monthly rents are put up against five (5) monthly expenses of the property:
- Principal
- Interest
- Taxes
- Insurance
- HOA Dues (if any)
Together, these are often called the “PITIA.”
(b) Principal & Interest
The loan principal is the total loan amount, plus any costs of the mortgage that have been financed. Loans that are paid down over a set period (called “amortizing” loans) include monthly payments towards the loan principal.
Loans also often have an interest only option meaning that each month payments are made towards interest only. In this case, no portion of the principal loan balance is paid down over the interest only period. Instead, a balloon payment in the amount of the principal loan balance is due at the end of the loan term for interest only loans or principal payments will begin being paid at the end of the interest only period.
If the loan is amortized, (i.e., principal is being paid with monthly payments), a mortgage calculator can be used to determine monthly principal and interest payments, based on a given loan size, interest rate, and amortization term.
(c) Taxes, Insurance, & HOA Dues
The next portion of the debt component of the DSCR calculation consists of taxes, insurance, and HOA dues. These are fairly self explanatory. Calculate the monthly taxes and insurance for a refinance (or estimated monthly taxes and insurance quote for a purchase) and add in any HOA dues present.
The total of monthly taxes, insurance, and HOA dues (if any), along with principal and interest payments, make up all debts included in the no tax return investment property loan DSCR equation. It’s that simple!
(d) Example
The property is rents for $2,000/month and has the following expensesPrincipal & Interest $1,000/mo
Property Taxes $250/mo
Insurance $120/moHOA Dues $130/moTOTAL PITIA $1,500/mo
In this example, the DSCR = $2,000 Monthly Rent / $1,500 Monthly PITIA = 1.33.
No tax return investment property lenders generally want to see DSCR above 1.00, and sometimes offer better pricing if the DSCR is above 1.25-1.50.
2) Purchase v. Refinance
Use this loan for a purchase or a refinance of real property
Purchase they provide a great way to qualify for a purchase loan without tax returns, income or employment, or historical bank statements.
Refinancing, using an investment property loan, can be used to tap into a property’s equity and “cash out” the property. For example, if equity in a property increases, a real estate investor can obtain a investment property loan that provides cash in hand to be used for any business purpose.3) Down Payment, Rates & Costs
No tax return investment property loans are long term solutions with terms of 15 or 30 years and can be fixed or adjustable.
The minimum down payment on an investment property loan is usually 20% (or minimum 20% equity for a refinance). Some lenders require up to 25% or more depending on credit, DSCR, and other factors including a reserve requirement. Larger down payments do often allow for a better rate.
Relatives ac provide gift funds as long as the funds only for towards sown payment, reserves or closing costs.
Rates for investment property loans are generally higher than traditional loans (based on increased perceived risk to lenders). All other typical loans fees are similar, such as origination points, broker and lender fees, appraisals, title and escrow, etc.
4) Personal Credit
Although personal income and debts are not considered for a no tax return investment property loan, personal credit is considered in the loan approval process. However, this requirement is typically no more scrutinized than a hard money loan.
Lenders want to see that a real estate investor is generally able to pay their bills in a timely fashion. In addition, having more than 1 or 2 late mortgage payments in the previous year can often require a loan approval exception, which can sometimes delay the process.
Advantages & Disadvantages
1) Pros of No-Tax-Return Investment Property Loans
- No tax returns required
- No employment or income required
- Personal or business income not considered
- No debt-to-income (DTI) ratio developed or considered
- Allows real estate investors and self-employed individuals to qualify when they otherwise cannot
2) Cons of No-Tax-Return Investment Property Loans
- Larger down payment than traditional loans
- Rates are slightly higher than traditional loans
- Some (but not all) lenders require landlord experience
- Personal credit still plays a role
Bottom Line
No-tax-return investment property loans are a great way to avoid hard money with a viable long-term financing solution for real estate investors. The lessened documentation and underwriting requirements are similar to hard money loans, while rates and fees are more comparable to traditional loans.
Traditional mortgage lending requires the use of tax returns during the loan approval process, investment property loans do not require tax-returns. With these loans, real estate investors are able to purchase or refinance a property with no employment required, no personal income considered, and no debt-to-income ratio developed.
The only cash flow that matters is the rent of the property being financed. That’s it. If the monthly rents sufficiently cover the monthly expenses—principal, interest, taxes, insurances, and HOA dues (PITIA)—i.e., if the property DSCRs (debt services), the property will qualify.
Highlights | Rental Loans California:
- No Tax Returns
- Employment not Required
- No Income Required
- No Debt to Income Ratio Calculated
- Cash Flow based on Subject Property rents | if property is vacant upon purchase market rents from the appraisal will be used to calculate DSCR
- SFR, Condo and 1-4 Unit
- Maximum Loan $7.5M | Purchase and R/T Refinance
- Maximum Loan $4M | Cash out Refinance
- Unlimited Financed Properties OK
New No Tax Return Loans
Bank Statement Loans | Valor Lending Group
The Bank Statement Loan programs allow self-employed individuals to receive a home loan without using tax returns, W2’s and pay stubs. Bank Statement Loan programs use the total deposits in your bank account and that is used to calculate the income over a 12 to 24 month period, with your bank statements they determine if you meet the criteria. If the criteria is met, you can get a mortgage loan with competitive rates.
This loan program is available for loans from $100,000 all the way up to Jumbo loans as high as $7,500,000 for purchase or refinance.
What Are Bank Statement Loans?
These are not the type of loans that were prevalent in the pre-2008 financial crisis, and no longer are the days in which loan applicants can simply state their income on a loan application with virtually no due diligence conducted by the lender. After the 2008 financial crisis, the sweeping provisions of Dodd-Frank changed the industry substantially, at least in the owner-occupied residential context. Since 2010 Dodd-Frank has required lenders to document a residential borrower’s ability to repay the loan. Bank statement lenders still want to ensure borrowers can repay their mortgages; they just use bank statements to verify income as opposed to tax returns. Self-employed borrowers are able to document their ability to repay based on business deposits into their personal or business bank accounts, i.e., their true cash flow.
Why Use Bank Statement Loans?
1) The Difference
Traditional mortgage lenders require tax returns, W-2s, and paycheck stubs in order to determine monthly income. For salaried and hourly borrowers, the lenders look at gross income for qualifying purposes. But for self-employed borrowers, traditional mortgage lenders look at net income, the adjusted gross income showing on tax returns. This puts self-employed borrowers at a disadvantage because the typical self-employed or 1099 employee will write off as much expense as possible from their gross income on their tax returns to minimize how much they owe once tax season comes around. Borrowers still must qualify based on the income deposited over a given period, typically verified on 12 or 24 months of bank statements. The total deposits in the bank statement period are the gross income used. Once this number is established, the debt to income ratio or DTI is derived (based on the income against the new mortgage payment and current monthly minimum debt obligations i.e. credit card, car loan, student loans, etc.) to ensure the borrower can afford the addition of the mortgage loan payment. If all aspects of the borrower’s finances are within the program requirements and a DTI no higher than 55%, the lender will be able to underwrite and finance the loan. These loans are repackaged and sold on the secondary market just the same as traditional mortgage financing.
2) Qualifying
This is an incredible and expanding area of mortgages that levels the playing field for self-employed and 1099 employee borrowers, providing the opportunity to qualify without tax returns. These types of loan programs can be used for both owner-occupied, and non-owner-occupied 1-4 unit properties, the same as traditional financing allows. The best bank statement loans, borrowers still must qualify based on the income deposited over a given period, typically verified on 12 or 24 months of bank statements. The gross amount deposited in the given amount of time is then considered their “gross income”. Once this number is established, the debt to income ratio or DTI is derived (based on the income against the new mortgage payment and current monthly minimum debt obligations i.e. credit card, car loan, student loans, etc.) to ensure the borrower can afford the addition of the mortgage loan payment. If all aspects of the borrower’s financial is within the program requirements and a DTI no higher than 55%, the lender will be able to underwrite and finance the loan. These loans are repackaged and sold on the secondary market just the same as traditional mortgage financing. This is an incredible and expanding area of mortgages that levels the playing field for self-employed and 1099 employee borrowers, providing the opportunity to qualify without tax returns. These types of loan programs can be used for both owner-occupied, and non-owner-occupied 1-4 unit properties alike the same as traditional financing allows.
What Does A Bank Statement Loan Look Like?
1) Self-Employed Requirement
Bank statement loan programs will typically require a borrower to be self-employed for a minimum of two years. This is verified either through appropriate business licenses and/or a letter from a tax preparer. In addition, if the borrower owns more than one business, typically lenders will allow using all business accounts to be used to verify income. Furthermore, a self-employed or 1099 employee, using a bank statement loan program, may also include W2 earnings from non-self-employed income and/or a non-self-employed co-borrower in terms of qualifying income.
2) Bank Deposits
Once again, bank statement loan programs review 12-24 months consecutive bank statements to determine annual income based on the gross deposits. No tax returns are requested or reviewed, instead, the lender will determine an average monthly total of qualifying income deposits over the appropriate period. (ex. $100,000 in deposits / 12 months = $8,333.33 gross monthly income) Bank statement loan programs will look at either personal or business accounts, depending on which account is used as their primary income deposit account. However, regardless of the account, only income deposits are considered in the income equation in most cases. All lenders have their own different caveats to their programs. That is why using a mortgage broker is essential. For instance, one lender may only use the net deposits discounting the withdraws from the total dollar amount deposited. Whereas another may take 100% deposits into the account as income. A mortgage broker will be able to determine the best lender option based on each individual scenario.
(a) Business Bank Statement
If business bank statements are used, the borrower needs at least 50% owner of the business. The deposits will be discounted based on the appropriate ownership percentage. As an example, 100,000 in deposits at 50% ownership = $50,000 in considered annual income. This is the case unless the business accounts for the borrower’s 50% of business income.
In general, the lender will apply a default 50% expense ratio, meaning that 50% of deposits count as qualifying deposits (because 50% are presumed to go towards business expenses). If true business expenses are less than 50%, with an appropriate tax preparer letter and/or Profit & Loss statement, lenders will allow up to 95% of deposits to count as qualifying income with additional factors considered such as industry and number of employees.
(b) Personal Bank Statements
Personal bank statements are great because 100% of deposits are used to qualify. There is a difference between using personal statements the business bank statements. It comes with the assumption that the expenses have been deducted from the gross income of the business bank statements. This makes the net business income 100% of deposits into the personal account. An additional requirement to using 100% of the deposits is the borrower must have a business account. If the borrower doesn’t have business accounts, the personal bank statements will be treated as a business account.
3) Income, Debts & Credit
After determining total qualifying income, the next step is to total up all debts, including the new mortgage payment. All monthly debts are viewed in conjunction with a total monthly qualifying income, and most lenders will allow up to 50% debt-to-income (“DTI”) ratio when qualifying borrowers for a loan. Most bank statement loan programs will require a minimum 620 credit score, although each has its own guidelines. Credit requirements for bank statement loans often mirror those of more traditional loan programs because outside of the income verification, all others.
4) Down Payment, Rates & Costs
The minimum down payment on a bank statement loan can be as low as 10% to 20% depending on the lender. That said, these minimums can be affected by several factors including market volatility and a number of investors on the secondary markets purchasing these types of loans. Minimum down payments are always good to know but as with any mortgage lending program, the larger the down payment the lower the interest rate with additional determining factors. A borrower can receive assistance from relatives through gift funds Rates for bank statement loans are generally higher than traditional loans (based on increased perceived risk to bank statement lenders), but all other typical loan fees are similar, such as origination points, broker and lender fees, appraisals, title, and escrow, etc.
5) Jumbo Bank Statement Loans
It is also possible to get a “jumbo bank statement loan.” These simple bank statement loans above a certain dollar amount, above and beyond the county loan limits as per the individual county. For example, California Jumbo Loans start above minimum loan amounts ranging as per California county loan limits for 1 to 4 unit properties.
6) Commercial Bank Statement Loans
Commercial bank statement loans require a similar analysis of bank statements to determine a borrower’s qualifying income. However, there are also significant differences, and if you are looking to learn more about commercial bank statement loans click here.
What Bank Statement Loans Are NOT
1) Bank Statement Loans Are NOT True Stated Income Loans
(a) Once again, bank statement loans require income verification.
The income verification is based on bank account deposits. In the residential, owner-occupied arena, Dodd-Frank has eliminated “true” stated income loans.
(b) Bank Statement Loans Are NOT “No Tax Return Investment Property Loans”
Borrowers that fall outside traditional underwriting guidelines but are looking for long-term loans with more attractive rates. The bank statement loan is a great option but is not a rental loan. These loans do not require tax returns but do require a debt-to-income ratio calculation which is based on the gross deposits. They provide more flexibility and no AGI (Adjusted Gross Income) finding for qualifying. Follow this link for more information on investment property loans.
Finding The Best Bank Statement Lenders
Many bank statement lenders do not have a retail channel, meaning they will only fund loans through a broker. The best brokers spend many hours scouring thousands of loan programs to find the best rate and terms for their clients. It is in the broker’s best interest to find the lowest rate and most favorable terms available in order to close the deal. Make sure all deposits go into one account if you are purchasing or refinancing real estate. The account can be for personal or business use and will ensure all deposits are counted. Saving for a down payment and accumulating months of enough deposits takes time, so it is a good idea to speak with a broker far in advance of desired purchase date.
Advantages And Disadvantages of Bank Statement Loans
1) Pros of Bank Statement Loans
- “No tax returns required
- Allows self-employed individuals and 1099 contractors to qualify
- Qualify even if the business is showing a loss
- Comply with Dodd-Frank and receive all appropriate borrower protections
2) Cons of Bank Statement Loans
- Must be in business for at least 2 years, showing the steady flow of deposits
- Not available to salaried borrowers (although non-self-employed co-borrowers allowed)
- Rates are slightly higher than traditional mortgages (but not more)
- None of the government programs (such as FHA, VA, or USDA) apply
Bank Statement Program Highlights:
- 12 and 24 month Bank Statement options available (1 to 2 year 1099 only)
- Up to 90% LTV (on Purchases & R/T Refinances)
- Borrower and Lender paid points available
- Must have 2 years verifiable self employment income (must own at least 50% of the business)
- No Tax Returns
- Loans up to $7.5MM
- Purchase and cash-out or rate-term refinance
- 4 years seasoning for foreclosure, short sale, bankruptcy or deed-in-lieu
- Owner-occupied, 2nd homes and non-owner occupied
What you would need for submission:
- 12-24 Months Bank Statements (business or personal)
- Copy of Business License (3 years)
- CPA Letter (stating you are 100% owner, you have been in business for 2 years and they have done your taxes for two years | Also list your current expense ratio and the CPA License Number)
- Purchase Contract (for purchase)
- Current Mortgage Statement (for refinance)
- Hazard Insurance Dec Page or New Quote for purchase
- Driver License (front and back)
If you would like more details on qualification and requirements, I am available to answer any questions you may have.
New No Tax Return Loans
Stated Income Loans | Valor Lending Group
Are you Self Employed or a Business Owner?
Tax returns preventing you from getting a good rate?
Not anymore, Provide your 12-24 months (business or personal) bank statements with a CPA letter for income qualification!!
Our Top CA Stated Income Loans allow self-employed borrowers to qualify based on the amount of deposits into their bank account, where the cash flow is sufficient to cover the new mortgage payment and all other debts.
Stated Income loans are best for investors and business owners who write off a majority of their income on yearly taxes (as we all do) and need an alternate way of qualifying their income to purchase an investment or owner occupied 1-4 unit property.
What Are Stated Income Loans?
These are not the type of loans that were prevalent in the pre-2008 financial crisis, and no longer are the days in which loan applicants can simply state their income on a loan application with virtually no due diligence conducted by the lender.
After the 2008 financial crisis, the sweeping provisions of Dodd-Frank changed the industry substantially, at least in the owner-occupied residential context. Since 2010 Dodd-Frank has required lenders to document a residential borrower’s ability to repay the loan.
Bank statement lenders still want to ensure borrowers can repay their mortgages; they just use bank statements to verify income as opposed to tax returns. Self-employed borrowers are able to document their ability to repay based on business deposits into their personal or business bank accounts, i.e., their true cash flow.
Why Use Stated Income Loans?
1) The Difference
Traditional mortgage lenders require tax returns, W-2s, and paycheck stubs in order to determine monthly income. For salaried and hourly borrowers, the lenders look at gross income for qualifying purposes. For self-employed borrowers, traditional mortgage lenders look at net income, the adjusted gross income showing on tax returns. This puts self-employed borrowers at a disadvantage because the typical self-employed or 1099 employee will write off as much expense as possible from their gross income on their tax returns to minimize how much they owe once tax season comes around.
Finding The Best Bank Statement Lenders
Many bank statement lenders do not have a retail channel, meaning they will only fund loans through a broker. The best brokers spend many hours scouring thousands of loan programs to find the best rate and terms for their clients. It is in the broker’s best interest to find the lowest rate and most favorable terms available in order to close the deal. Make sure all deposits go into one account if you are purchasing or refinancing real estate. The account can be for personal or business use and will ensure all deposits are counted. Saving for a down payment and accumulating months of enough deposits takes time, so it is a good idea to speak with a broker far in advance of desired purchase date.
Stated Income Program Highlights:
- 12 and 24 month Bank Statement options available
- Up to 90% LTV (on Purchases & R/T Refinances)
- Borrower and Lender paid points available
- Must have 2 years verifiable self employment income
- No Tax Returns
What you would need for submission
- 12-24 Months Bank Statements (business or personal)
- Copy of Business License (3 years)
- CPA Letter (stating you are 100% owner, you have been in business for 2 years and they have done your taxes for two years | Also list your current expense ratio and the CPA License Number)
- Purchase Contract (for purchase)
- Current Mortgage Statement (for refinance)
- Hazard Insurance Dec Page or New Quote for purchase
- Driver License (front and back)
Recap of our Loan Products:
- Hard Money Loans (20% down / minimal documentation) Typically Fund in 7-10 days.
- Stated Income Loans (Great for business owners and self employed ) No tax returns!
- 100% financing is available (we can cross collateralize other properties if there is enough equity)
- Valor VA Home Loan 100% financing up to $1.5MM
- Investor Cash Flow Loan – No tax returns or DTI calculation! Based on subject property cash flow
- Flipper & Rehab Loans (Flip a property with one of our many options)
- 2nd Position Loans up to $5mm
- Raw Land & Lot Loans
- Ground up Construction for spec homes, custom homes and commercial ground up.
- Farms, Vineyards, Ranches and Agricultural Properties (25-30% down)
- 5% down Jumbo’s with NO MI up to $2mm / 10% down up to $3mm
- Manufactured Housing / Mobile Homes (20% down / 600+ credit score)
- Acreage Properties
- Commercial Loans up to $500mm
- 3% & 5% down Conventional Loans– LPMI (Lender paid mortgage insurance)
- Foreign Nationals Loans (no social security or residency required)
We also offer:
- 10, 15, 20, 25, 30 year Fixed, Conventional Conforming Loans (under $510,400)
- High Balance Conforming aka Super Conforming (from $510,400-$765,600)
- Jumbo’s to $10 Million / Super low rates! / 10% down Jumbo to $3mm
- FHA, USDA
- ARM’s
- Reverse mortgages up to $1 Million Value
- Refinance including Cash Out
We look forward to the opportunity to serve you!
CONTACT ME TODAY for immediate attention to your scenario!
**Rates and terms subject to change without notice**
For the most up to date mortgage news visit: Mortgage News Daily
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