Stated income loans haven’t gone away totally, as some people mistakenly believe. While you won’t find them offered by every lender today, there are some that still offer it. Before you decide which loan option is right for you, it’s important to understand the different requirements of the two loans.
Standard Loan Guidelines
Standard loans require that you verify everything pertaining to your loan qualifications. You tell the lender your qualifications and then you must provide proof to show that they are what you say.
Typically, you need the following:
- Paystubs covering the last 30 days of employment
- W-2s covering the last 2 years of employment
- Tax returns for the last 2 years if you are self-employed or work on commission
- Asset statements for the last 2 months
As you can see, you have to verify every aspect of your loan. The documents above are the minimum documents a lender will require. Typically, once they view these documents, they have more requirements based on what they find.
Lenders need to make sure that you can afford the loan beyond a reasonable doubt. They have to make sure that you make enough money to cover not only the housing payment, but also any other monthly debts, such as your credit cards, car payments, or student loans. Lenders also need to make sure that your employment and/or income is stable enough that you will be able to afford the loan for the foreseeable future.
Stated Income Guidelines
Stated income loans aren’t what they used to be, due to the housing crisis. Lenders still have to make sure that borrowers have the ‘ability to repay’ the loan. If they don’t make sure you can afford the loan beyond a reasonable doubt, the lender could be at risk of a lawsuit due to the inadequacy of their underwriting.
While stated income loans don’t require you to verify your income, they do require you to verify every other aspect of your loan. Lenders have to do their due diligence to make sure that you can afford the loan and won’t default on it in the near future.
While you won’t provide your tax returns or W-2s, you will provide:
- Proof of employment whether self-employed or employed by a third party – You can provide a letter from your CPA if you are self-employed or a Verification of Employment if you are employed by someone
- Proof of assets – Lenders need to make sure that you have enough money on hand to cover your closing costs and down payment as well as have reserves on hand to cover your mortgage costs should your income stop
Lenders want to know that you are a low risk of default. They do this by requiring borrowers to have:
- High credit score – You’ll need a high credit score to offset the risk of the lender not checking your income. The high credit score shows that you are financially responsible and able to handle your bills.
- Large down payment – You’ll need to put down more than 5% to get a stated income loan. Some lenders require as much as 20% – 30% down to ensure that you won’t default on the loan.
Stated income loans do still exist, but you need much higher qualifications in order to get the loan. It’s a good idea to shop around and find a lender with the lowest interest rate and closing costs for the stated income loan. You’ll be in an even better position if you can manage the full documentation loan, as you’ll be able to get a lower interest rate and better terms if you can verify your income.Click to See the Latest Mortgage Rates»