Many of us work in industries that don’t offer a consistent paycheck from an employer. Sooner or later, this raises a question: “How do I get a mortgage if I make most of my money through cash?”
You’ve probably heard horror stories about the process of getting approved from your friends who work in salaried 9-5s or the service industry. So, what’s it going to be like for you?
The process is slightly different if you’re paid cash or receive earnings in an unconventional way. However, you can still qualify for no-doc mortgages.
We’re here to explain everything you need to know about alternative income verification loans and how you can show proof of income if you’re paid cash.
What is an alternative income verification loan?
Suppose you’re asking yourself, ‘How do I show proof of income if I get paid cash,’ alternative income verification loans may be what you need. Also called no-income verification mortgages, these loans require different documentation than a traditional mortgage. They are preferred by many people working in the cash economy (who frequently distrust institutional regulation of finances) or in unconventional roles such as seasonal work.
Say you work as a server. The bulk of your income is made up of tips, and you stop at the grocery store to do your shopping at the end of a busy shift. You pay cash. How much did you make? It becomes difficult to track your earnings, and may be even more difficult to explain to a mortgage broker.
However, with the correct type of alternative income verification loan, it’s possible to prove you can take out a loan regardless of your cash earnings.
Types of Alternative Income Loans
Below we’ll detail the four types of loans you might seek. We’ll also cover who might benefit from each type of loan.
Stated Income, Stated Assets
This type of arrangement is beneficial for small business owners whose assets may be tied up in a business account. This type of loan requires no documentation of either income or assets but does require you to provide a figure for both — the lender will accept the figures you provide.
This type of loan used to be extremely popular, but the passage of the 2010 Dodd-Frank Act prohibited this type of arrangement for owner-occupied properties. However, they are still used by property investors.
Stated Income, Verified Assets
In a SIVA arrangement, you agree for a lender to verify your existing assets, but you only provide a stated figure of your annual income. This is useful if your earnings are hard to document — such as if you work with cash and aren’t the best at record-keeping!
No Income Verification, Verified Assets
In this situation, a lender verifies your assets just as with a SIVA loan. However, you don’t have to provide any documentation or statements regarding your income — the agreement means that income isn’t discussed at all.
This seems like a minor difference, but NIVA loans are useful in some cases. Retirees often use this kind of loan — documentation will need to be provided to verify assets such as pension statements or a 401(k).
No Income Verification, No Asset Verification
This type of loan has no requirements for documentation of either income or assets. Say your employer is based overseas and your income goes to a foreign bank account — this makes it extremely difficult to verify for a lender. Like SISA loans, these are now only available for property investors rather than live-in homeowners.
Who could benefit from an alternative income verification loan?
Self-Employed Business Owners
Self-employed individuals such as tradespeople who work mostly with cash can benefit from this type of arrangement, as they may have substantial assets, but income can be hard to keep track of. An alternative income verification loan can be a useful option for obtaining a self employment home loan. In general, if you can provide evidence of assets, you should opt for a SIVA or NIVA loan. Retirees can also borrow in this way.
Service Industry Workers
Waiting and bar staff members are also a great example of who could benefit from a SIVA mortgage. Your tips bulk up your bank balance (assets).
Domestic and foreign property investors can benefit from SISA and NINA loans, as they cut out difficulties such as verifying foreign accounts and translation work.
Who can qualify and how?
It’s easier to get alternative income verification loans over traditional mortgage loans for many people. However, you will still need to meet several criteria for approval.
Large banks typically offer these loans with enough cash reserves to lend directly. Most mortgage brokers need approval from Fannie Mae & Freddie Mac to approve loans due to the disastrous lending that caused the 2008 financial crisis. You will need to prove to these lenders that you are eligible since they’re taking a risk lending you the money.
Here are some factors of people who can apply for this loan:
- High level of income and savings. Even if you receive most of your earnings in cash, you must still show that you can afford to keep up with the payments. These mortgages usually have significantly higher interest rates than conventional mortgages, and down payments tend to be substantially higher.
- High credit score requirement (700+). No-income verification mortgages often require a better credit score than traditional mortgages.
The Bottom Line
Alternative income verification loans are a good option if you’re unlikely to be approved for a conventional mortgage. As always with borrowing, you should rigorously assess your means before committing to borrowing: never do something just because you can.
Consider your situation and which type of no-doc mortgage might suit you best. Whether you’re dependent on unaccountable cash like tips for your income or you just struggle to keep track of paperwork, contact the team at Associates Home Loan to learn more.