Despite the continued tightening of guidelines within the mortgage industry, there are a few new stated Jumbo Home loan programs available for high net worth home buyers in California. Although the title of this article is "stated income home loans" a more accurate description would be "No Income" or No Ratio" home loan program.
Difference between Stated Income and No Income
A "stated income" home loan refers to a situation where the borrower "states" the income on the application that they will need to qualify for the loan. These programs were fairly common prior to the 2008 mortgage meltdown. Also known as "Liar Loans", a stated income is typically considered fraud since the income on the application should be in the income the borrower is reporting to the IRS. However, the new program mentioned above is a No Income program. This means that the income section of the application is blank. No income is used in qualifying the borrower. Debt to income ratios are not even calculated (which is why this program is also known as a No Ratio loan).
Not the Easiest Home Loan to Qualify For
While it may sound like the beginning of something bad, this program serves those who are very strong financially, but for one reason of another don't want to open up their entire financialk situation to the whims of an underwriter. Many borrowers who will be interested in this program own several different companies and may be involved in several partnerships, making it very difficult to underwrite the loan. Not even an underwriter likes the thought of trying to underwrite a file that is two feet thick with tax returns.
Two No Income Home Loan Programs
There are two versions of this program. The first type of borrower will have at least 50.1% equity in their home, or 50.1% down payment. The borrower will also need to have reserves in the bank after the close of escrow equaling 36 months of their principal, interest, taxes, and insurance. The minimum FICO score for a purchase or rate and term refinance is 740. For those borrowers looking to pull cash out through a refinance, they will need a minimum FICO of 760.
The assets for the downpayment and/or reserves are "sourced and seasoned" for the most recent 12 months. Gifts are allowed for the down payment as long as the buyer has at least 10% of the own funds (10% of the purchase price) and can cover the 36 months reserves with their own funds.
Another way to qualify for this program, and with less down, is by having even more assets in reserves. Essentially for home buyers who could purchase the home for cash, this version of the program requires that the borrower have financial assets equal to the amount of the loan. For example, if Mr. Jones is buying a home in Laguna Beach for $2,000,000, they could get a loan amount of $1,400,000. They would need to provide 12 months financial statements showing they have $1,400,000 in reserves. The reserves can be stock accounts, retirement, etc. However, there requirements about the percentage of certain types of accounts (retirement, stock) that can be used towards the reserves. For example, only 60% of the borrrower IRA would count towards the reserve requirement for borrowers 59 1/2 or younger. 70% of they are older.
Maximum Loan Amount
The maximum loan amount for this program is $3,500,000. This means a home can be purchased in Newport Beach for $7,000,000 with a little more than 50% down, and no income documentation will be needed. For loan amounts to $2,500,000, a 35% down payment is required. (translates to an approximate purchase price of $3,800,000 and loan of $2,470,000).
The first step in determining whether this program will meet your needs is to contact a local Orange County Home Loan specialist.
Authored by Tim Storm, an Orange County, CA Mortgage Loan Officer MLO 223456 - Please contact my office at Home Point Financial. Direct line at 949-640-3102. www.SocalJumboLoans.com