You cannot obtain a home equity loan if you have no source of income unless you apply for the loan jointly with somebody who does have income. However, income comes in many forms, and even if you are not employed, you may have some other source of income that enables you to qualify for a loan. You should not apply for a loan you cannot afford to repay.
When you take out a home equity loan you must make monthly principal and interest payments until you have repaid the debt. Lenders determine how much you can afford to pay by dividing your total debt payments by your gross income to calculate your debt-to-income (DTI) ratio. Typically, you cannot qualify for a loan if the loan payment would cause your DTI ratio to exceed 36 percent, although some lenders approve loans for people with DTI levels as high as 50 percent.
When you apply for a loan, the lender normally requires you to submit your two most recent payslips and your W-2s from the the past two years. Many people believe this means that self-employed people cannot obtain home loans because they have no payslips or W-2s. In fact, self-employed people can submit their tax returns to the bank, and the bank can determine their business income from those returns. If you receive pension income, dividend income, rental income or any other documented source of income, you can qualify for a home loan as long as you have sufficient income to cover the loan payments and your other debts.
If you are married, your lender calculates the combined DTI ratio for you and your spouse as a couple. Your lack of income does not prevent you from qualifying for a loan as long as your spouse has a reliable income source. If you are not married but jointly own a home with someone else, the lender approves or declines the loan on the basis of both your income and that co-owner's income unless you apply for the loan as a single applicant, in which case your lack of income would preclude you from qualifying for the loan.
Generally, banks only allow you to add a cosigner to a home equity loan application if the cosigner owns the property being financed. However, if you have no income, you can shop around, because some lenders allow you to have a non-owner cosigner. You can qualify for the loan on the basis of the cosigner's income, and you and the cosigner are equally responsible for repaying the debt. If you cannot afford to pay the loan as a result of your lack of income, the cosigner must repay the loan to prevent the house from going into foreclosure, an event that will harm both your credit score and your cosigner's. If you cannot afford the home, you should not attempt to buy it.
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