When you’re applying for a loan from a bank or other traditional lender, one of the first things they’ll ask for is a verification of income. Not only that, but verification of income will likely be one of the biggest factors they’ll consider. If you are unable to verify an income stream that meets their stringent standards, not only for the amount but for consistency and reliability, you are unlikely to get the money you need. If this sounds like you, you should consider a No Income Verification Loan from Fidelity Funding.
Not all lenders view income verification as so crucial a factor in gauging a potential borrower’s suitability for a loan. In fact, some lenders do not require income verification at all, instead looking to other factors, such as the equity in the collateral property. Where can one find such a loan?
Unlike traditional lenders like banks, which are limited by strict lending requirements, Hard Money Lenders have much more freedom to operate, considering a variety of factors in making their own determinations about the opportunity presented by a given borrower. This allows Hard Money Lenders to offer loans that ignore completely a potential borrower’s stated income and instead rely on other factors.
Obviously, no lender is just going to hand away money to any person who comes through the door asking for it. But Hard Money Lenders are able to look at a variety of factors in determining whether or not to approve a given loan. If you are wondering whether you potentially would qualify, consider these factors:
One key factor that Hard Money Lenders will look at when evaluating a loan application is the equity available in the collateral property. Many No Income Verification Loans are secured by property, known as collateral. The amount of equity in the collateral property is often measured in terms of the so-called loan-to-value ratio, or LTV. The LTV is calculated by dividing the amount of debt secured by the property by the property’s fair market value.
Calculating the loan-to-value ratio, or LTV, involves fairly simple mathematics. For example, to use round numbers, imagine that a potential borrower owns a property worth $100,000. If that potential borrower owns the property “free and clear,” that is, unencumbered by any debt, then the loan-to-value ratio is zero divided by $100,000, which, of course, is 0%.
Now, say that same property owner wanted to borrow $50,000 secured by that property. If the property owner were to add a $50,000 mortgage to the property, then the loan-to-value ratio would be $50,000 divided by $100,000, or a 50% LTV.
Next, let’s pretend that after the property owner took out that $50,000 first mortgage, he or she wanted to take out a second mortgage in the amount of $25,000. Then, the loan-to-value ratio would be calculated by adding the $50,000 first mortgage to the $25,000 second mortgage, for a total of $75,000. Dividing that sum by the $100,000 gives the fair market value of the underlying property. In this instance, the LTV would be 75%.
Loan-to-value ratio matters to Hard Money Lenders because it is a shorthand way for them to gauge the amount of risk involved in making the loan. In essence, the loan-to-value ratio shows how much cushion a lender has in the event of a decline in the value of the collateral property.
To see why, let’s return to the above example, pretending that our property owner has been successful in obtaining both the first and second mortgages. The property now is encumbered by a $50,000 first mortgage and a $25,000 second mortgage. Now, let’s say that a downturn occurs in the local real estate market and, combined with some problems that occurred at the property itself, the fair market value of that property drops to only $60,000.
This means that while the full $50,000 of the first mortgage is covered, only $10,000 out of the $25,000 second mortgage now is, meaning that the holder of the second mortgage potentially stands to take a significant loss. To better understand why this is, let’s take a look at our second factor.
When considering an application for a loan to be secured by collateral property, a lender will consider any senior debt existing on the property. The so-called seniority of given debt plays a significant role in the amount of risk a lender is assuming when making a loan. This is because, in the event of default, more senior debts have the first right to any proceeds generated from the sale of the collateral property.
That is why, in our above example, if the property value declined to $60,000, the holder of the first mortgage would still stand to be paid in full on its $50,000 balance and the holder of the second mortgage would receive only $10,000.
When considering a loan application without verifying income, a lender will look to other means for measuring the risk of a potential loan, such as the amount of equity available in the collateral property. Therefore, the best way to qualify for such a loan is to consider other ways that you can give the potential lender confidence that they have the best chance possible to recover fully on the loan should unforeseen circumstances come to pass.
At Fidelity Funding, we look beyond overly simplistic measures, such as our borrowers’ verified incomes, in deciding whether to make loans. We take into account the entire circumstances, looking for ways to work with our borrowers instead of reasons to say no. Contact Fidelity Funding today to see if a No Income Verification Loan is right for you!