As layoffs continue to impact American households, many consumers are depleting their emergency funds and racking up debt to stay afloat. During these trying times, one untapped source remains for many borrowers: their home equity.
Home equity is a valuable asset for many homeowners — especially those approaching retirement age. Read below to learn how a home equity loan works and whether or not you can qualify for one without any income.
Understanding home equity loans
A home equity loan is a type of second mortgage that allows you to borrow funds using your equity as collateral. Lenders assess how much you can tap based on how much equity you own and your combined loan-to-value (CLTV) ratio — the percentage of your property with liens compared to its appraised value.
Most lenders require you to own at least 20% equity and a CLTV ratio no higher than 80% or 85%.
Home equity loans offer fixed interest rates generally lower than personal loans and credit cards. Repayment terms for home equity loans usually have set monthly payments spanning 5 to 30 years.
While home equity loans are a great way to access your home wealth, they do have a few downsides:
- You'll have closing costs and fees to pay for.
- Your cash flow will decrease because of monthly payments.
- If you fail to make your payments, your lender could foreclose.
Can you get a home equity loan with no income?
A "no income home equity loan" might seem like a beacon of hope, but is it a realistic option?
Typically, conventional home equity loans require borrowers to have a stable source of income to qualify. However, some home equity loans and equity loan alternatives will forego income requirements and evaluate based on other qualifications. A lender may consider other factors, such as:
- Credit score and credit history
- Equity owned in the home
- Loan-to-value (LTV) ratio
- Alternative sources of income
- A cosigner's financial health
- Collateral or assets
Types of no-income verification home equity loans
As the name suggests, a no income home equity loan doesn't require proof of income through traditional channels such as pay stubs, tax returns, or W-2 forms. Homeowners can explore three primary no doc mortgages, also known as no income verification mortgage loans, for financing.
Stated income, verified assets loan
A stated income, verified assets (SIVA) mortgage loan will not require income documentation. Instead, you must show proof of your assets, including bank, investment, and retirement accounts.
SIVA home equity loans are a popular type of financing for self-employed professionals or those who work in cash-heavy professions.
No income, verified assets loan
A no income, verified assets (NOVA) home equity loan is popular with retirees who have plenty of assets but no current source of income. In this case, the lender will use the borrower's assets as collateral for the home equity loan.
No income, no asset (NINA) loan
A NINA loan allows real estate investors to qualify for financing without providing proof of income or assets. Instead, loan approval is based primarily on the borrower's credit score and the property's potential to generate rental income.
NINA loans are only available for investment properties, and the funds can only be used to purchase the approved property. Because they come with high borrowing rates, it's worth exploring all of your options before leveraging one.
Tips to improve your chances of getting a home equity loan
Use an alternative sources of income: Most lenders take into consideration other types of income when approving you for a home equity loan. For example, rental income, disability benefits, alimony, and child support can be leveraged when applying for financing. Even a side hustle generating cash is something to share with lenders. You're likely to be approved if you can demonstrate your ability to repay the loan.
Have or build excellent credit: Excellent credit makes qualifying for a home equity loan with no income easier. Excellent credit usually includes scores of 800 or higher, while scores between 740 and 799 are considered very good. You can improve your credit score by paying your bills on time, keeping a low balance on your credit cards, and avoiding opening new credit products unless necessary.
Add a co-signer: Leveraging a credible co-signer on a loan can help you get approved, especially if you have a low or no current income history. Your co-signer generally needs good credit and a source of income to qualify. It's important to note that if you default on the home equity loan, your co-signer must take over payments.
Compare multiple lenders: Without a regular source of income, you may have to shop around before finding a lender that will agree to a home equity loan or alternative. You can start by asking your real estate agent if they have any suggestions for lenders. You can also contact the financial institutions you already have an account with. Another excellent way to find the best rates and terms is to prequalify with various mortgage lenders when possible.
Explore home equity loan alternatives: If requirements are too strict, consider leveraging other financial products. By shopping around, you may find an option that better fits your needs, situation, and long-term plans. Different equity products offer an array of factors that may be more competitive for you, such as:
- Longer/shorter repayment terms
- Higher loan amounts
- Higher interest rates/ no interest rates
Alternatives to home equity loans
Home equity investments (HEIs)
Unlike traditional home equity lines of credit (HELOCs) or home equity loans, a home equity investment (HEI) is a financing option with no income requirements. A home equity investment provides a lump sum of cash from your home's wealth in exchange for a portion of your home's future appreciation.
In this partnership, homeowners maintain full control of their property. With an HEI, you have a 30-year repayment term, though you can buy back your equity at any point, penalty-free. There are no monthly payments.
HEIs have less stringent requirements than other products. You'll need sufficient equity, a home or investment property in an eligible state, and a credit score above 500. You can use the funds for anything, including debt consolidation, home repairs, starting a business, etc.
Prequalify with no impact on your credit score or commitment to apply.
Reverse mortgages
To qualify for a reverse mortgage, you must be 62 or older and have paid off all or most of your mortgage balance.
A reverse mortgage relies on your home equity as collateral, similar to a home equity loan. When you take out a reverse mortgage, you agree to sign over your home to the lender. In exchange, they will give you cash in a lump sum, via monthly payments, or through an equity line of credit.
You repay the loan (and accrued interest) when you sell your home, pass away, or no longer meet the strict conditions you agreed to. If you or your estate cannot afford to pay that sum, the lender will take the property.
Like a home equity loan, you can live in the home for as long as you want when you have a reverse mortgage. You are still required to maintain the house and pay property taxes and homeowners insurance. Mortgage lenders will verify you have enough income to meet those requirements.
Sale-leasebacks
A sale-leaseback scenario is when you sell your home, often to an investor or real estate company, and continue living there as a renter.
When you complete a sale-leaseback, you receive the home equity just as you would in a traditional home sale — without having to move out.
It may be harder to initiate a sale-leaseback than a home equity loan because you must find someone willing to let you stay in the property. However, it may be one of the best options if you don't want to move.
Final thoughts
If you're unemployed or have already retired, you can still harness your home's equity to your benefit. It's essential to weigh your options and determine the best fit for your needs.
A Home Equity Investment (HEI) from Point can help you do away with monthly payments. Visit Point.com to learn more.
