Can I Get A Mortgage If I Get Paid In Cash?

Getting a mortgage when you are paid in cash can seem daunting, but it is possible with the right preparation and documentation. As a cash-paid worker, you just need to take some extra steps to prove your income to lenders when applying for a mortgage.

Why Getting A Mortgage With Cash Income Is Difficult

The main challenge with getting a mortgage when paid in cash is providing adequate proof of your income Mortgage lenders require extensive income documentation to ensure borrowers can afford their loans This usually includes recent pay stubs, W-2s, and tax returns. For cash-paid workers, these standard documents don’t exist.

Lenders are especially wary of cash incomes because they can be unreliable or come from illegal sources. Their strict requirements are to minimize risk. But if you have a stable cash income stream, there are ways to document it. You just have to be prepared to work harder to prove it.

How To Show Proof Of Cash Income

Here are some tips for proving cash income when applying for a mortgage

• Get letters from employers/clients confirming your income. Written confirmation of your annual cash earnings from employers or regular clients can help verify your income. Make sure the letters are signed and dated on official letterhead.

• Provide bank statements tracking cash deposits. Depositing your cash earnings into bank accounts creates a paper trail you can show lenders. Highlight cash deposits on the statements to demonstrate the source of funds.

• File tax returns declaring your cash income. Report your cash earnings as income on your federal tax returns. Include all applicable schedules, like a Schedule C for self-employment income.

• Open a new account and start depositing cash. If you don’t already deposit cash in accounts, start now. Showing regular cash deposits for 6-12 months provides better income documentation.

• Consider getting a secured credit card. Making regular payments builds your credit profile. Good credit helps offset concerns about unverifiable income.

• Work with a mortgage broker. An experienced broker will know lenders more open to unconventional income sources. They can help you pick the right lender and paperwork to prove your income.

Types Of Mortgages For Cash Income

The mortgage programs available with cash income documentation include:

• FHA loans – FHA offers low down payments and more flexibility for unconventional incomes like cash earnings.

• VA loans – For qualifying veterans, VA loans can be easier to get with cash pay evidence through residual income guidelines.

• USDA loans – In rural areas, USDA mortgages are an option. They may require letters from employers and more bank statements.

• Portfolio loans – Local banks sometimes offer portfolio loans tailored to their communities, including cash earners.

• Subprime loans – If you have issues beyond just cash income, subprime lenders offer higher rates and costs to offset risks.

• Alternative documents – Some lenders verify income using just bank statements and letters, not tax returns.

• Stated income loans – These were popular before 2008 but rare today. You state your income without documentation, but require excellent credit.

Tips For Getting Approved

Beyond proof of income, you can boost your chances of getting approved in other ways:

• Make a larger down payment, typically 20% or more of the home price. This reassures lenders about your savings and financial strength.

• Avoid other major debts like car loans to minimize your debt-to-income ratio.

• Pick an affordable home price that fits your documented earnings, typically no more than 3x your income.

• Choose a 15-year mortgage term to show you can handle higher monthly payments.

• Get pre-approved to confirm you meet a lender’s requirements before house hunting.

• Work to build up your credit scores into the good to excellent range (640+ FICO).

• Be upfront and honest with lenders to avoid surprises – don’t hide or misrepresent your income sources.

Alternatives To Getting A Mortgage

If getting a mortgage proves too difficult, consider these alternatives to finance purchasing a home:

• Save up and buy with an all-cash offer, then get financing later. Cash buyers have an edge in competitive markets.

• Explore rent-to-own or lease-to-own programs offered by some sellers, builders, and real estate investors.

• Look into owner financing where the seller acts as the bank and collects payments from you.

• Invest in fixing up distressed properties at low prices using personal loans or hard money loans for renovations.

• Work on renting until you can build up provable income sources and improve your credit to qualify for a future mortgage.

The Bottom Line

Getting approved for a mortgage when you are paid in cash does require some extra effort. But with meticulous record keeping and ample documentation, it is definitely possible for responsible cash-paid workers to become homeowners. Being upfront with lenders, taking steps to build your credit, and saving for a sizable down payment can all help your chances of getting a mortgage. With persistence and the right approach, you can achieve the dream of homeownership, even with unconventional cash income streams.