Stated income loans became a thing of the past after 2008, but are slowly coming back. The way you see them now, however, will not be as they were in the past. In fact, it is hard to find “stated income” loans, but you will find them with other names such as alternative documentation loans, asset-based loans, and offer letter loans. Alternative documentation and asset-based loans kind of speak for themselves – you are providing a different type of documentation of your income rather than the standard paystubs and/or tax returns. The offer letter loan has a few more quirks to it, but could come in very handy for many different types of people that are either in between jobs or even those expecting a raise.
What is the Offer Letter Loan?
The offer letter loan is a loan that gets approved based on the offer letter you are provided. It can apply to almost anyone that is provided this type of letter. A few examples include:
- An employee being relocated to another state
- An employee given a change in jobs that needs to move
- A college graduate that is just starting his first job
- A person that is in between jobs and needs to move
The method of verifying your income is the only thing that is different about the offer letter loan. The terms, fees, and method of approving you for the loan are exactly the same as any other conventional loan. The income you are using to qualify for the loan is verified with an offer letter which has been signed by all parties involved. This new loan simply makes sense for those that are just getting back into the workforce after being laid off or those that are just starting out in life. It gives them a chance to experience home ownership without the requirement to be on the job for a certain length of time.
What are the Requirements?
Just like any other loan, there are certain requirements you must meet in order to be approved for the offer letter loan. They include:
- The offer letter must be non-contingent, meaning that there cannot be any conditions of employment – it has to clearly state that you are going to be employed at x amount of salary and starting on a certain date
- The starting date that is stated in the offer letter must be within 90 days of the closing of your loan in order to be used
- The home you are purchasing must be your primary residence, which means you will have to provide proof that you will be living there
- The home must be a single-family home (condo, PUD, or townhomes also apply)
- You must be able to provide proof of enough assets to cover the time period that you will own the mortgage yet not have started your job yet plus 3 months’ worth of reserves. In the worst case scenario, you would have to prove 6 months’ worth of reserves to qualify because you are allowed to close on the loan 3 months before you start the job
The offer letter loan can also work for those borrowers that are staying in the same job but are expecting a raise in the near future. If you need to move or want to refinance, you can use your letter rewarding you the raise to qualify for a new loan. The same principles above apply, however. Your home must not be a multi-unit; you must have the reserves necessary to pay for the mortgage before your raise kicks in, and your award letter must be legitimate.
The offer letter is similar to a stated income loan, however, you are in essence, verifying your income; it is just future income you are talking about. Not every lender will offer these types of loans; however. You will have better luck with smaller and private lenders, rather than the larger lenders as a majority of the time the offer letter loan does not fall within the Qualified Mortgage guidelines, which means that the lender is at risk should you default on the loan. Many lenders are willing to take that risk, however.Click to See the Latest Mortgage Rates»