What Is a NINJA Loan?

Definition and Examples of a NINJA Loan

Lenders generally require independent verification of a borrower's ability to repay a loan by verifying pay stubs, tax returns, and other financial documents.

• Alternate names: Low or no-doc loan; stated income, stated asset loans

No income, no job, no assets (NINJA) loans do not impose this typical requirement. NINJA loans only require a lender to ask you how much you earn and what assets you own; they don't verify your employment, income, or the existence of claimed assets.

Before the 2008 financial crisis, many mortgage lenders issued NINJA loans. They provided mortgages to people without confirming that they had sufficient income and assets to make their payments. Instead, borrowers simply told lenders how much they earned and how much money they had in the bank, and no one checked to see if these statements were true.

Unfortunately, many borrowers who were given NINJA loans based on their stated income and assets ended up with loans they could not afford, which resulted in foreclosures.

How NINJA Loans Work

The process for getting a NINJA loan is much simpler than in a traditional loan. You fill out the application and estimate your income and assets. The loan officer checks your credit score and information and approves the loan if they see no superficial issues.

Here's an example of how these loans work and how they can create issues for you and the lender. Say you make $60,000 per year and have $25,000 for a down payment. You could apply for a NINJA loan and tell them that you make $100,000 a year and have $80,000 in savings for a 20% down payment. Because they don't verify the information you give, they would likely approve a NINJA loan of $320,000, so you could buy a $400,000 home.

However, because you don’t actually make that much and can only put down $25,000, your monthly payments would be around $2,500 (and you'd need mortgage insurance). You make $5,000 a month before taxes, so more than 50% of your earnings after taxes would go to a mortgage payment.

On average, nearly 40% of earnings go to transportation, food, insurance, pensions, and routine healthcare expenses. So, you'd have about 10% or less of your monthly earnings left for other expenses that are necessary for modern living—like your cell phone, an internet connection, and a Netflix subscription. Additionally, you'd need to consider replenishing or maintaining your savings and emergency funds and think about any extra expenses.

Pros and Cons of NINJA Loans

Pros Explained

• Quick approval: NINJA loans can be made quickly by lenders because you can simply state your income and assets, and the lender can base loan approval on this provided information. Lenders won't have to review tax returns or pay stubs, contact employers, or review bank statements.
• Alternate income borrowers: If you have a non-traditional income source or don't wish to disclose financial information, NINJA loans might be an alternative if you can find a provider.

Cons Explained

• Risky for lenders: NINJA loans are risky for lenders because a borrower might not be honest about income or assets.
• Borrower default: NINJA loans can ultimately harm borrowers who may not understand the consequences of having a loan they can't afford.
• Bad for the market: NINJA loans can be unhealthy for the housing market and financial systems because too many borrowers can default.
• Predatory lending: If you can find a lender that offers NINJA loans or some form of no-verification loans, be prepared to pay higher interest rates and work with lenders who may not have your best interests in mind.

Alternatives to NINJA Loans

NINJA loans are no longer common because of new regulations including the Ability to Repay rule. This rule requires lenders to independently verify income and assets to ensure that borrowers have the money to pay back loans.

Lenders who comply with income and asset verification requirements can issue “qualified mortgages," which are loans that meet specific government criteria and do not include provisions that are harmful to borrowers.

Another alternative for homebuyers is an FHA loan, which requires less money for a down payment. You can also look into conventional mortgages. If you're not sure how much you'll be able to borrow, a mortgage preapproval is an excellent first step. You can also talk to a loan officer at your bank to see what you might qualify for.

What It Means for Lenders and Borrowers

The significant issue behind NINJA loans is that if you weren't forthcoming about your income or assets, the lender may approve a loan that you would not otherwise have received. Therefore, it is in the best interests of financial institutions and borrowers to ensure they do not issue or recieve products that cannot be afforded.

It's also important to remember that banks and lenders are businesses and need to make money. Loans are one of the products they offer to customers; they are business investment opportunities. When banks verify your finances, they ensure the loan is an investment that will generate returns while giving you the means to finance something you may not otherwise be able to afford. Because NINJA loans do not achieve this, they do not benefit most lenders or borrowers and should be avoided unless there are no other alternatives.

If you believe you might need a NINJA loan, you should talk to a qualified financial advisor or trusted lender to help you identify other financing options.