Unlocking Home Equity: Can You Secure a HELOC Without Traditional Income Verification?

Home Equity Lines of Credit (HELOC's) are great for variable spending due to their flexibility in available credit. With a home equity line, homeowners may use the credit line to make major improvements to their homes or pay off debt through a HELOC, or to do something else significant. Generally speaking, the process of applying for a home equity line includes submitting a lengthy application which will be reviewed by the lender who must check the borrower's income along with their length of employment and debt-to-income ratios. There are self-employed individuals, retirees, and people who receive income in a non-traditional manner that are wondering if it is possible to obtain a HELOC without having to provide proof of income.

The short answer is: it is extremely rare in today's lending environment to find a HELOC that can be obtained without supporting documentation, which is sometimes referred to as "no-doc" loans. With increased regulation put in place since the financial crisis of 2008, lenders now have a legal obligation to determine if a borrower has the ability to pay back a loan (an "Ability-to-Repay" or "ATR" analysis); thus, it is expected that if the income source for repayment is a traditional W2 job, the lender will perform some type of income verification. In addition to traditional workers, there also are several ways that lenders may assess borrowers who have non-traditional income sources and who often have difficulty obtaining lines through conventional means because of their limited employment prospects or income types. Many lenders offer specific products aimed at these non-traditional borrowers and they do not offer "no-doc" lines as were previously used before the financial crisis, rather they offer low-doc or alternative-doc lines. Examples of the types of alternative income qualification products are discussed below.

Alternative Income Qualification Options for an Equity Line

There are several types of lending products that specifically cater to non-traditional income borrowers. These alternate mortgage products were not established as "no-doc" loans before the financial crisis, and are instead classified as "low-doc" or "alternative-doc" products.

Stated Income Loans – In this financing structure, a borrower will state what they believe their income level to be, and the lender will assess it using less traditional means to verify income than as typical with the standard methods of using pay stubs and tax returns. Alternative income verification might include reviewing bank accounts, vendor or customer records, business statements, tax returns or profit/loss summaries.