A Landlord Can Get a Mortgage With No Proof of Income

To buy a house to rent out, you do not need a job and you do not need to prove any income. In online ads for these loans, promoters describe buying a rental property without showing W-2s, tax returns, or income at all.

The product is called a DSCR loan, short for debt service coverage ratio loan. It is a mortgage, but not the traditional kind for a homebuyer. It is a commercial loan designed for people who want to be landlords.

That distinction is why the loan is legal. Before the financial crisis, lenders made NINJA loans. As reporter Jeff Guo explains, NINJA stood for "no income, no job, no assets, no problem." Those loans let buyers borrow with almost no checks. After the crash, Congress tightened the rules and required lenders to check income, assets, and credit history.

But those rules exempted business-type loans for investors who purchase rundown houses, renovate them, and try to resell them for a profit. Traditional banks largely avoided that business, so small private lenders stepped in, often lending their own money or money pooled from friends and family.

Eric Abramovich, co-founder of ROC360, a company that makes loans to real estate investors, says DSCR loans run on business logic. Instead of judging the landlord, the lender judges the house. The two main checks are the borrower's credit score and an appraisal report showing what the home is worth and what rent it could bring in each month. If the expected rent covers the mortgage payment, the lender approves the loan. He says it is the same reasoning banks use for loans to developers building office towers and apartment complexes.

Getting one can be startlingly simple. The process is handled online or by phone, and lenders advertise how easy it is to borrow. In principle, one borrower can use these loans for any number of houses, and two landlords from New York took full advantage of that freedom.