Why Might Traditional Lending Be the Wrong Choice For Your Client?
Finding the right loan option for your client can be a very challenging process as you must commit to a decision that might not always be ideal. As a broker, you must be able to navigate both the banking and lending world to find the right fit for your clients. However, oftentimes neither presents a comforting option.
The issue with bank loans is that they expect their borrowers to exude a high level of dependability that can only be proven through numerous documents such as bank statements, tax bills, or pay stubs. The banking process frequently overlooks various elements of a potential borrower’s qualities and characters in favor of a standard, apathetic metric. Oftentimes, the bank loan process can take an exuberant amount of time and if you do not match certain qualities, you can be denied a loan.
On the other side are private lenders who will typically offer hard money loans to brokers. These options can be rewarding for borrowers in desperate need of a loan; however, they can be quite expensive, can accumulate large interest rates, and will often tie your client’s property down as collateral making the investment very risky. These two loan options make up the ends of the real estate mortgage spectrum; however, there exists another option for brokers in a middle area: No Income Verification Loans.
What is a No Income Verification Loan?
No Income Verification Loans fall in the middle as they require less underwriting than a bank mortgage and typically take a shorter amount of time to get approved. Obviously, they do not require any form of income verification making them very ideal for self-employed individuals who do not fit the mold of the working environment. You can still get competitive rates compared to other lending options with interest rates as low as 6.74%.
No Income Verification Loans are an ideal lending option for those who do not exude massive wealth or great credit history, but are in genuine need of a loan. As a broker, you should be aware of what a No Income Verification Loan can offer, how it can be differentiated from other loans, and who might be qualified to need this type of loan.
Who are No Income Verification Loans Designed For?
No Income Verification lending is perfect for those applicants who don't quite meet the stringent income, credit, and net worth standards of traditional banks and other A-paper lenders. Ideal clients may not have perfect credit, but they also do not have the type of serious credit history issues that would lead to a hard money loan being their only option. In other words, the perfect candidate is usually the "in between" client, aka the client you often aren't sure how to help.
What makes No Income Verification lending so ideal as a loan option is that it offers people the opportunity to get involved in real estate investing without the high barriers of entry that come with disposable wealth. Rather than basing a loan’s acceptance off of a borrower’s level of income, you can focus on other qualities that can inform the basic facts about a borrower but in a more realistic light, such as what a borrower needs, what they have, and how they handle debt. This makes it an ideal form of investing for individuals who have acquired money through non-traditional means. By focusing on the borrower’s situation and interests, as a broker, you can navigate the different loan options to find the right fit. And for many, a No Income Verification Loan may be the best option.
Who are No Income Verification Loans Not Designed For?
It is important to know that No Income Verification Loans are not for everyone. If you have the capital, hard money loans might be your best investment overall as you can afford to make large equity gains. In that case, a No Income Verification Loan might not be as appealing to those borrowers as they might not be able to generate the same level of equity growth as a hard money loan. As such this is another reason why No Income Verification Loans are targeted towards individuals in the middle.
A traditional mortgage sits on the other end of the spectrum as your client might be best suited for it as they fit perfectly within all the credentials and prerequisites. In this case, a No Income Verification Loan might not suit that client as they will be better off with that type of loan.
Overall, it is important for a borrower to be able to distinguish between the different loan possibilities and choose whichever one works best and makes your client happiest. Borrowers should not be denied a loan for poor reasons if it can be avoided and they should not have to pay an exuberant amount of money if they do not feel comfortable with it. Avoid making risky deals and take into account alternate loan options such as a No Income Verification Loan.
As a broker, it is your responsibility to learn about each client (who they are, what they want to achieve, and how they are equipped to achieve certain things), and formulate the best conclusion based on their needs.