Applying for a refinance mortgage or home equity loan includes calculating a debt ratio to make sure
it's within the underwriting guidelines, but for some borrowers,
that may not be necessary.
While uncommon now, some lenders may be able to streamline the
processing of a home loan with less income
documentation, such as, tax returns, if certain qualifications are met.
For example, a lender may use the unverified amount of income
stated on the application for a streamline refinance. There is a price to pay for this privilege,
which is a higher mortgage rate.
The adjustment to the rate is
usually based on the credit scores. For example, there could be
a 1/2% add-on to the rate for a score of 720 or better, or a 1%
add-on for less than a 720 score.
Also, lenders offset their risk by adjusting the loan to
value according to the borrower's credit scores. For example, a
720 credit score may be needed for a home loan up to 80% loan
to value, a 700 score for a maximum 75% loan, or a 680 score for
a maximum 70% loan to value.
While a stated income, or no doc loan means no income verification, the
income on the application has to be consistent with the employment listed, and there may be asset verification required.
A teacher who says he makes $150,000 a year, with no money in
the bank, can be a red flag.
Homeowners who have an existing FHA home loan, may have the opportunity to reduce their monthly payment using an FHA streamline refinance, which has no income or asset verification.
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