Definition and Examples of No-Income Loans
No-income loans are types of loans designed for someone with income that doesn't come from a source like a full-time job. These loans generally require you to have enough liquid assets or alternative income sources to repay the loan—and the lender is required to verify these sources.
Alternate names: Alternate income loan, alternative income verification loan, no-doc loan, bank statement loan, no-income verification mortgage
For example, if you don't work because you receive monthly payments from a trust that your well-to-do grandparents had set up for you, you have an alternative source of income. If you decide to buy a house, you might need to apply for a mortgage. The lender would need to verify that you have enough alternative income to make payments and would determine your ability to pay off the mortgage eventually.
How No-Income Loans Work
These loans work similarly to other types of loans. However, no-income loans require that you have some alternative method of paying them back with interest. Therefore, lenders will want to see your credit history, bank accounts, and proof of any liquid assets that demonstrate your ability to repay the loan.
The more financial stability you demonstrate to a lender, the more likely you are to get a loan application approved.
Lenders look over your finances, assets, credit score, distributions, or payouts from any other sources to determine the level of risk you represent to their firm if they were to approve your loan. If they are confident that you can pay them back, they're likely to approve your request.
There are many different types of liquid or cash-equivalent assets, monetary compensation, benefits, or alternative income sources you can use to show that you can make payments. Some assets might include:
- A house or real estate
- Appraised valuables
- Government bonds
- A vehicle
Some of the different types of income you can use consist of:
- Social Security benefits (retirement or disability)
- Dividend payments or other investment income
- A job offer with an offer and an acceptance letter
- A retirement account (including a pension)
- Veterans Administration (VA) benefits
- Side gigs or a business startup
- Self-employment income
- Unemployment benefits
- Royalty payments
- Partner income
- Child support
- Tip income
Even if a lender thinks you’re able to repay your loan, they might still think there is some risk. As a result, you might have to pay extra to make up for the risk the lender is taking. In addition, no-income loans can come with several disadvantages, such as:
- Low loan amounts, even if you have a co-signer
- Repayment terms of months rather than years
- Higher interest rates
- Higher fees
Combining income and assets can help you achieve approval for a no-income loan by reducing the amount you need to borrow or establishing that the lender will be paid back.
Types of No-Income Loans
If you need a loan and have no other option but a no-income loan, it's important to understand the available types.
There are four types of no-income loans in use:
- Stated income, verified assets (SIVA)
- No income, no job, no assets (NINJA)
- No income, verified assets (NIVA)
- No income, no assets (NINA)
A SIVA loan can be approved for someone who has income, although not enough for a loan—but enough verified assets to put up as collateral for a lender to feel comfortable lending money to them.
NINJA loans used to be commonplace before the financial crash of 2008. They were essentially loans made trusting the requestor's word that they could pay off the loan. However, lending regulations have made them much harder to obtain.
Of the four types, the NIVA loan is generally available to consumers without traditional or alternative incomes. It requires that assets be appraised for value and then placed as collateral before a loan is approved.
NINA loans are generally reserved for real estate investors who have rental income. These investors must demonstrate they have enough to make payments, for loan approval.
Carefully consider your resources and all options before you decide on a no-income loan, because it is likely to cost you more in the long run.
Alternatives to No-Income Loans
If you're not able to receive approval for a no-income loan, there are other possibilities. Before you decide on one of these loans, it helps to consider some other options.
Ask a Family Member or Friend for a Loan
Instead of going to the bank, see whether a loved one can help you out. You’ll get better terms. Just make sure you repay the debt, or you could lose an important relationship.
Check around your community to see whether there are any resources available. For instance, a food pantry, indigent utility funds, or religious congregations might be able to help you cover your expenses in the short term without the need for a loan. Crowd-sourcing is also a community resource that could help you raise money for a mortgage.
Get Creative in How You Make Money
Consider becoming a rideshare driver. You can cash out every day, allowing you the chance to earn some quick money. You could also offer handyman, pet sitting, or child care services to earn more money quickly. Renting out a room in your home or selling unneeded items can also give you some added cash.
If you have equity built up in your home, you might be able to get a home equity line of credit (HELOC), where you can treat your home as a credit card. You're given a limit, an interest rate, and payment dates. However, this option should be used with caution; you increase the risk of losing your home should you default on the payments, because lenders can force you to sell your home to pay the debt.
- No-income loans are loans for people with less-traditional income. They need to be secured with either collateral or another guarantee of repayment.
- No-income loans are best if used only in situations where they are necessary.
- Collateral could be liquid assets such as cash, cash equivalents, or other property you can sell quickly.
- There are alternatives to these high-rate loans that might be less costly and better to use.