Popular No Tax Return Loans | Valor Lending Group
When you are self-employed it may be difficult for you to qualify for a traditional mortgage.
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.
Popular No Tax Return Loans
Top Rental Loans California | Valor Lending Group
Are you a real estate investor looking to acquire a rental loan?
Rental loans today have competitive financing for residential properties for new acquisitions.
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 will deliver top notch communication, rates and turn times to help you acquire the rental loan you need.
What Are No-Tax-Return Investment Property Loans?
Sometimes called “Investment property loans” or “rental loans,” no tax return investment property loans do not consider a borrower’s income in the traditional sense.
The “cash flow” is just the monthly rental amount the property brings in. For example, a property renting for $2,000/month would be attributed a qualifying income of $2,000/month. The main requirement for these investment property loans is that the monthly rents cover the monthly expenses. It is that simple.
Not only is a borrower’s income not considered in the loan application process, investment property lenders do not request income amounts, in fact there is no income verification of any kind. No letters from employers, no W2s, and no pay stubs. Again, the income of the investment property is simply the cash flow of the property.
Why Use No-Tax-Return Investment Property Loans?
Traditional mortgage lenders require tax returns, W-2s, and paycheck stubs in order to determine monthly income. Salaried and hourly borrowers would require the lenders to 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 real estate investors and other self employed borrowers at a disadvantage.
However, rental loans are a great way for real estate investors to qualify for both acquisitions and refinances, without requiring bank statements or tax returns, and without having to qualify using a debt to income ratio. (Bank statement loans are also a great option for self employed borrowers, to learn more about bank statement loans click here.)
Borrowers that fall outside traditional underwriting guidelines but are looking for long term loans with more attractive rates than hard money loans can use the no tax return investment property loan to their advantage. These loans do not require tax returns, income or employment, or debt to income ratio calculations.
No tax return loans provide the flexibility and lessened documentation of hard money loans, but with rates closer to traditional financing.
This is a constantly evolving area of real estate financing that offers a powerful way to grow your real estate portfolio.
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
Debt service coverage ratio (DSCR) is one of many financial ratios that lenders assess when considering a loan application. This ratio is especially important because the result gives some indication to the lender of whether you’ll 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).
DSCR – Example
For example, assume an investment property is rented for $2,000/month. Assume also the property has the following monthly expenses.
Principal & Interest $1,000/mo
Property Taxes $250/mo
Insurance $120/mo
HOA Dues $130/mo
TOTAL 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.
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 (but not much more)
- Some (but not all) lenders require landlord experience
- Personal credit still plays a role
Top Rental Loans California Highlights:
- 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
Popular No Tax Return Loans
Top Stated Income Loans | Valor Lending Group
Stated income loans were created for self-employed individuals that do not qualify for a traditional mortgage due to the low income on their tax returns. Investors and banks created the stated income loan program to help self employed individuals buy or refinance their home.
Valor Lending Group works with the very best to help you get the perfect loan that fits your needs.
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. 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.
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)
- Provide CPA Letter (stating you are 100% owner, have been in business for 2 years and taxes have been done for two years | Also list a 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)
Popular No Tax Return Loans
Bank Statement Loans 2021 | Valor Lending Group
The Bank Statement Loans 2021 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 are 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.
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.
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)
- Credit scores starting at 620
- 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.
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.
The Bottom Line
Bank statement loans have become increasingly popular as a viable option for self-employed borrowers for home financing. They are ideal for those who make enough income to support a mortgage but can’t qualify with tax returns. Self-employment should not make it more difficult to secure a home loan. Whether you are a small business owner or an independent contractor the bank statement loans are great ways to homeownership. Speak to a mortgage professional at Valor Lending Group to discuss how you can qualify. Gregory Riggs Esq.
Recap of our Loan Products:
- Stated Income Loans (No Tax Returns, no W-2s, No P&L) up to $3M
- Bank Statement Income Loans (Great Bank Statement Programs for business owners and self-employed)
- Hard Money Loans (As low as 20% down / minimal documentation) Fund in 7-10 days
- Flipper Loans (Flip a property with one of our many options) up to 90% leverage
- Commercial Line of Credit
- 100% Financing (cross collateralize- hard money)
- Foreign Nationals Loans (no social security or residency required)
- Raw Land & Lot Loans
- Ground up Construction for spec homes, custom homes and commercial ground up to $500M
- 2nd Position Loans up to $5M
- Rental Property Loan – No tax returns or DTI calculation! Based on subject property cash flow
- Farms, Vineyards, Ranches and Agricultural Properties (20-30% down)
- 10% down Jumbo’s with NO MI up to $1.5M
- Manufactured Housing / Mobile Homes (20% down / 620+ credit score)
- Acreage Properties
- Commercial Loans up to $500M
- 5% down Jumbo (Up to $2M Lender paid PMI)
We also offer:
- 10, 15, 20, 25, 30 year Fixed, Conventional Conforming Loans (under $484,350)
- High Balance Conforming aka Super Conforming (from $484,350-$726,525)
- Jumbo’s to $10 Million / Super low rates! / 10% down Jumbo to $3mm
- FHA, VA, USDA
- ARM’s
- Reverse mortgages up to $10 Million Value
CONTACT ME TODAY for immediate attention to your scenario!
**Rates and terms subject to change without notice**
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