The Return of the NINA Loan: What No-Income, No-Asset Mortgages Are and Why They Matter
If you’ve ever gotten preapproved for a home loan, you know firsthand just how much paperwork lenders need to verify your income and down payment. Most loan programs require you provide months’ worth of pay stubs and tax forms, plus bank statements to document where you got the cash that you’re putting down.
However, there is a type of loan that doesn’t require any of this paperwork — the no-income-no-asset loan, or NINA.
Popular before the financial crisis, this type of loan largely disappeared for the past decade as mortgage rules tightened. But for the first time since the housing bubble burst, NINA loans are now making a comeback. The privately-owned lender 360 Mortgage Group will now start offering NINA loans, COO Andrew Weiss-Malik says — making the loan product available to mortgage brokers and mortgage bankers across the U.S.
In this article, we’ll discuss exactly how they work, whom they’re for and what risks to watch out for
- What is a NINA loan?
- How a NINA loan works
- Why NINA loan programs disappeared
- Why lenders are bringing NINA loans back
- Risks to watch out for
What is a NINA loan?
A NINA loan is a mortgage that allows you to be approved without providing paperwork to document your income or assets. In traditional mortgage applications, you need to send in tax forms, bank statements and pay stubs. But with a NINA loan, you don’t even need to write down your monthly income on the loan application or verify how much money you have in the bank for a down payment.
The NINA program is only offered for investors wanting to buy, refinance or cash-out refinance an investment property. If you’re looking to buy a home to live in as your primary residence, or as a second or vacation home, the NINA loan product will be not be an option.
This is considerably different from the alternative lending programs popping up in recent years, which often allow borrowers to use bank statements to show money being deposited over a 12 or 24 month period instead of showing tax returns. With a NINA loan, you’re not providing tax returns or bank statements.
How a NINA loan works
A NINA loan involves some trade-offs on what gets scrutinized. Because the borrower’s income and assets are not verified, lenders offering these programs will take a closer look at the value and income potential of the property being purchased.
NINA loans don’t meet the standards of regular mortgage programs such as conventional or FHA, so the requirements will likely be different as more lenders offer them. The guidelines listed below are applicable to the NINA program being offered to mortgage brokers doing business with 360 Mortgage, the first company to bring them back so far.
Credit score requirements
The NINA loan program currently being offered requires a minimum credit score of 620. However, the lender will likely take a closer look at a borrower’s credit payment history, since they won’t be using other traditional measures of a person’s ability to repay a loan, like their debt-to-income ratio.
This 620 credit score minimum requirement is the same as what you would find for a conventional loan for buying or refinancing an investment property, although you would be required to have a substantial amount of reserve assets to be approved. Reserves are funds you need to have on hand, usually two to 12 months’ worth, to cover the payments on a rental property in the event it isn’t rented for a period of time.
Although government loan programs such as FHA allow for lower credit scores, they don’t allow you to purchase investment properties.
Minimum down payment
Borrowers will need to make at least a 20% down payment, plus pay any applicable closing costs in cash. The lender will not verify the source of this money with bank statements or gift letters, as a lender would with a conventional or FHA loan.
Credit scores on the lower end of the spectrum will require a bigger down payment.
The down payment requirement of 20% is the same as what most conventional lenders require on investment properties.
While the paperwork is thin in other areas, that’s not the case when it comes to verifying how much the property to be purchased is worth. After a standard appraisal, NINA programs will also require an additional look at the property called a desk review. This process involves a third-party appraisal professional validating the work of the primary appraiser, and provides the lender with additional support for the final value.
NINA loans are not just for self-employed borrowers. Regular hourly or salaried borrowers can also qualify. A two-year employment history is a standard requirement whether the borrower is self-employed or a traditional employee. The lender will need to be able to verify this history with a verification of employment, or in the case of self-employed borrowers, through a CPA or an accountant.
In nearly all cases, a NINA loan will be used to buy a rental property. The lender will take into consideration the potential or current income of the investment property being purchased or refinanced when making a decision on approving a NINA loan. In the case of a refinance, the borrower will have to provide current leases or some evidence that the rent will more than cover the new mortgage payment.
For new purchases, the appraiser will analyze the rental market nearby to confirm that the property will earn enough income to adequately cover the new mortgage payment.
Expect higher interest rates on a NINA loan than traditional programs. The most recent NINA offerings offer a 7/1 ARM, which means the rate is fixed for seven years before it can adjust, or a 30-year fixed option. The lower your credit score is, the higher the rate will be.
These NINA loans include a prepayment penalty, which means you’ll have to pay extra money if you sell or refinance before a designated period expires. The NINA program referenced in this article has a three-year prepayment penalty, costing you if you sell or refinance the mortgage before the 36th payment is made.
If you are planning to build a portfolio of investment properties, the NINA loan program can be used to purchase up to six properties.
Why NINA loan programs disappeared
The NINA loan program described above is the first in nearly a decade. Before the housing crisis, NINA loans were commonly offered for the purchase or refinance of residential real estate.
But the abuse of these types of loan programs contributed to the crash, and government regulators quickly adopted strict new rules that require lenders to verify they are making loans to borrowers who can repay. This kept lenders away from offering NINA programs.
NINA loans and new mortgage rules
One of the biggest post-crisis mortgage regulatory reforms was a new requirement by the Consumer Financial Protection Bureau (CFPB) that a lender be able to determine a consumer’s ability to repay a mortgage.
That sounds like it would completely eliminate no-income-no-asset loans. However, it appears that the CFPB rules were intended to protect homeowners and their primary residences and vacation homes. The bureau left some wiggle room in its rules about loans for business purposes.
Under the final guidelines, loans for business purposes are not covered by the ability to repay rules. This appears to exempt investment properties. That means it’s up to lenders to decide whether the programs they create are in their customers’ best interest.
That being said, there are still some safeguards with NINA loans. By only offering NINA loans on investment properties with verifiable current or potential rental income, the lender can demonstrate that the property has the income potential to offset the new mortgage payment. This was not a qualification of pre-housing crisis NINA loan programs, which were also available to borrowers on their primary and second homes.
Why lenders are bringing NINA loans back
All these new mortgage rules have pushed government-sponsored entities Fannie Mae and Freddie Mac to create new, tighter lending guidelines that require a lot more paperwork to verify a borrower’s income. This makes it hard for self-employed borrowers to get approved for a mortgage.
Weiss-Malik says Mortgage 360 Mortgage Group’s new NINA loan program can help self-employed borrowers who don’t qualify under the Fannie Mae and Freddie Mac documentation rules. That may be a welcome relief to self-employed borrowers who have been frustrated while trying to get a fully documented mortgage loan in the past.
Risks to watch out for
The risk of not verifying income and assets goes beyond the potential to approve borrowers who can’t repay the loans. The bigger issue is not requiring documentation for the down payment money – and who the interested parties in the transaction really are.
Straw buyer schemes
This may contribute to “straw buyer” mortgage rings. This involves bringing in people who meet the credit score requirements of this type of program to apply for loans, but who don’t have the resources to actually buy the home.
In one case in New Jersey, this scheme was used to create an artificial market for condominiums in an overdeveloped and financially-distressed complex. The owners of the condos provided the money to straw buyers and paid them a fee after the closing.
If you are encouraged by a loan officer, a real estate investment group or even a friend or family member to take out a NINA loan on the promise of getting paid a fee – or are being guaranteed a return on your investment – you may want to contact an attorney to review the terms of the purchase.
The other risk is that you will be in a position where you need to sell the property before the prepayment penalty expires. If you are considering buying a home to flip, you may want to look at alternatives to a NINA loan.
Final thoughts about NINA loans
NINA loans can be a viable option for investors who have substantial but complex income profiles. However, extra caution should be taken if you are approached with an “easy qualifying” option to start investing in real estate that doesn’t require any income or asset documentation.
The good news is that the current NINA offerings do have some built-in protection. They are only allowed on investment properties, and the property has to meet guidelines to ensure the potential rent on the property is likely to offset the new mortgage payment.
The information in this article is accurate as of the date of publishing