If you’re unemployed, refinancing your house to lower your interest rate or house payment might seem implausible. No-doc or limited documentation loans are ideal options in such a situation. They don’t require income verification and rely on your credit rating, bank statements and the amount of equity you have in your home to show you are a reasonable credit risk. Of course, these types of loans don’t come without strings attached: typically you won’t be able to borrow more than 80 percent of your home’s value, and you’ll get a higher interest rate that is based on your credit score.
Steps for Obtaining a Home Loan without Income:
Review your credit report. Good credit is vital for getting a loan without proof of income. Have the credit bureau remove any negative reporting that should not be there. Fix any negative issues on the report like past due reporting, liens and judgments.
Call local banks and mortgage companies to determine which ones process no-doc or stated income loans. Ask about rates and what up-front fees you’ll have to pay. Your credit report and an appraisal on the home will still be required; even if these costs can be rolled into your loan, your lender may ask for them up front and reimburse you for them at closing.
Apply with the lender of your choosing for the no-doc loan. Be prepared to provide a financial statement as well as bank statements and any other financial documentation that will strengthen your credit picture for the underwriter.
Make an appointment to meet with the appraiser assigned to value your home.
Review the conditions of closing with your mortgage lender. She will have submitted your loan package to an underwriter for evaluation; the underwriter will either deny or approve the loan and may attach conditions to the approval such as up to date bank statements showing proof of a certain balance. She will probably require that any repairs that the appraiser noted be completed before closing.
Meet with the closing agent at the title company to sign the closing documents. There is typically a three day right of rescission period before funding on the loan to give you the opportunity to stop the process and back out of completing the loan if you change your mind.
If your credit rating is less than perfect you may have to wait 12 months or more after you bring your credit up to par before you can apply for a no-doc mortgage.
Another option is to take out a home equity loan, or second mortgage on your home rather than refinancing. You may still only be allowed to borrow a total of 80 percent of your home’s value, meaning your first mortgage and your home equity loan together cannot total more than 80 percent, but different lenders may have different guidelines. That could mean additional funds available. There’s pros and cons with a home equity loan: some only require a drive-by appraisal, some have adjustable rates and if you get a second mortgage, you’ll have two house payments to make. Weigh all the options and consequences to determine which is best for you.