Applying for a loan can be a stressful process, especially if you have previously survived some financial hardship. You can build your credit score for a long time, ruin it in a few months, and hardly recover in a few years. That is why some special means of alternative financing are available and given out by some private lenders.
VOE loans are mortgage programs considered alternative financing because they are neither conventional nor government-issued loans. They are available through private lenders, but they are non-conforming to the Federal Housing Administration criteria. They only rely on the verification of employment – thus the abbreviation VOE loans.
If you are a wage earner or have trouble meeting the requirements for conventional mortgages, VOE loans might work for you. There are regulations and criteria, but the process is much shorter and less stringent.
Verification of Employment
Verification of employment is a widespread practice in the loan application process that banks and lenders use to determine the job stability of the potential borrower. This verification ensures that borrowers have a stable job and a sufficient income and that they don’t lie on their applications. There are written and verbal VOEs that all current and previous employers a borrower listed on an application should fill out.
Commonly, you must submit W-2 forms, pay stubs, and tax returns to apply for a loan. However, the lender relies only on your employment and credit history with VOE loans. If you have proof that you have been working for the past two years in the same company and have a credit score not lower than 650 – you are probably a suitable VOA loan borrower.
VOE mortgage loans in California are popular with people who want to buy a luxury property but don’t qualify for a jumbo loan. This is because lenders offer up to $5 million loan amount. The down payment depends on your credit score, but it can never be lower than 15%. The ideal candidate has a credit score above 680 and saved 20% for the down payment.
VOE Loan Terms
Negotiate the terms with your lender, the longevity can be as standard as any conventional mortgage, or you can get an adjustable rate. A 30-years-fixed is the most common for home buyers, but you can find lenders who offer a 7/6 and 7/1 ARM adjustable-rate loan and pay fixed for the first seven years.
This loan does not work for secondary residences, so the owner has to live in the bought house for at least 12 months; some lenders ask for longer than that. Nonetheless, VOE loans are a suitable way to spend your gift fund. Contrary to most other loans, you can spend 100% of your gift funds on a home purchase.
Self-employed borrowers have to submit proof of their work for every loan application. They usually prepare a business license or a letter from a certified accountant. The application is not valid if the loan applicant fills out the VOE form for themselves.
This is why VOE loans are not suitable for self-employed borrowers. Self-employed homebuyers need tax returns to prove their creditworthiness, and there are mortgage programs that could work for them, but VOE is not the one.
Standard VOE Loan Features and Requirements
Investors are purchasing VOE loans and have some standard eligibility criteria. For example, even if a lender offers a $5 million maximum amount, most investors secure up to $3 million loan amounts. They wouldn’t purchase the loan from a wage-working borrower without traditionally documented assets or a credit score higher than 660.
Take a 30-year-fixed rate or some other adjustable-rate loan, such as 7/1 or 7/6, where you can pay a fixed rate for the next seven years. The investors support all these options, and you can pay the interest during a fixed period.
A gift fund can be used for the down payment, which is not typical for some other conventional loans. Some lenders limit the amount of gift fund spending, but most VOE lenders only need to know how and where you got that gift money. Also, the gift fund that you spend on your home purchase should stay a gift. This means that you are not allowed to give it back to the person who gifted it to you.
The Benefits of the VOE Loan
If you have ever been denied a loan, the benefits are obvious to you. Compared to other loans, the process for a VOE mortgage is less complicated; it takes less time from the moment you apply until you sign closing documents. You have more chances to become a homeowner because the regulations are not as stringent.
Your employer fills out the VOE loan form, which you then submit along with your credit score and debt-to-income ratio. Some lenders will comply with working with you even if you do not own a social security number. ITIN number could be sufficient for getting a VOE loan. A few weeks after the application, you could already be moving into your house.
The problem can occur if you have a bad relationship with your employer, which could make this process not as smooth. Since the employer needs to fill out a form and guarantee your creditworthiness, they must be included in the loan application process.
Find Lenders Who Offer VOE Loans
Not every lender works with VOE loans, so you might have to hire a mortgage broker to find one in your area or go to an online search. Always make sure you are working with respectable companies that you can trust. Ask as many questions before signing any papers.
VOE loans present a higher risk for the lender so you might get higher rates, but you can sort that out by taking hybrid loans with a fixed period. If you are seeking a loan that does not insist on having a social security number, talk to your broker or a lender, and they might find a suitable VOE loan for you.