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There are many factors that can make you Mortgage application deny. So-called “unverifiable income” is one of them.
mortgage Lenders want to know if you have the financial ability to repay the loan. One way they do this is by requesting documents such as your federal income tax return, W-2s, and current pay stubs, according to to Freddie Mac.
LendingTree economist Jacob Channel said it’s difficult for lenders to verify your annual income if the money you make isn’t tied to a form like a W-2 or 1099.
For example, he said, it may be difficult for a mortgage lender to verify the income you earn from a rental property you own. The same can be said for things like gifting cash for a down payment or side hustle income.
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This is a more common problem than you think.
About 12% of recent potential homebuyers were denied a mortgage because the lender could not verify their income. according to See the 2024 Home Buyer and Seller Profile report from the National Association of Realtors.
NAR surveyed 5,390 buyers who purchased a primary residence between July 2023 and June 2024.
In this case, it may be worth considering unconventional mortgage options if you have a different form of income or are self-employed, said Melissa Cohn, regional vice president at William Raveis Mortgage in New York.
“The good news is that there are programs available for people who wouldn’t normally qualify,” she said. “But the price is a little more expensive.”
For example, you may have to maintain a higher-than-usual mortgage rate.
Here’s what you need to know.
How nonconforming mortgages work
Some homebuyers who need more flexibility when applying for a mortgage could benefit from a nonconforming mortgage, or a non-QM loan, Cohen said.
This type of loan verifies income in different ways. Non-QM lenders available if you are self-employed bank statement Calculate income that may qualify for a loan, not pay stubs, tax returns or W-2s, she said.
“They may also look to see what kind of assets you have,” Channel said.
If you’re self-employed, other banks and lenders will accept a current 1099 and don’t rely on tax returns, Cohen said.
However, be careful. Brian Nevins, sales manager at Bay Equity, the mortgage lender owned by Redfin, said that while it may be easier to qualify through income, the cost of such loans may be higher.
“You may have to jump through more hoops to get these mortgages,” Channel said.
For example, you may need a higher credit score or be required to provide a larger down payment.
The loan may also have a higher interest rate than a traditional loan. That’s because Non-quality management loan Failure to follow standards for qualified mortgages put By the Consumer Financial Protection Bureau.
According to statistics, in the first half of 2024, the average initial 30-year interest rate for non-conforming loans was 6.7%, while the average initial 30-year interest rate for conforming loans was 6.4%. data from CoreLogic.
A ‘stepping stone’ to unproven income
Channel says non-QM loans are generally more suitable for people investing in real estate or wealthy individuals with significant assets.
“In this case, you can substitute assets for active income,” he said.
Even if you suspect your income will be difficult to verify, it’s smart to start with traditional loan options.
If your application for a conventional mortgage is denied, contact your lender and ask why it was denied, he explains.
“Maybe you filed your W-2 form for the wrong year. Mistakes do happen,” Channel said.
But if you’re going through the transition from employed to self-employed, or starting a new job at a new company, a non-QM loan could be a “stepping stone,” Cohen says.
Experts say you can always apply for refinancing in the future once you start showing enough income on your tax returns.
“Just because you took out a non-QM loan doesn’t mean you’re in trouble,” Cohen said.
