A stated income loan is a unique mortgage that enables the borrowers to us alternative documentation rather traditional documents such as a pat-stub, W2, etc. Most homebuyers apply for a traditional mortgage by proving their income with paystubs and W-2s from a full-time job, but some consumers need to prove their income with non-traditional documentation. This can be done with a stated income loan or a no doc mortgage.
How Do Stated Income Mortgage Loans Work?
A stated income loan involves the lender verifying your income using nontraditional documentation, catering to individuals who seek mortgage qualification without relying on the standard documentation typically required by lenders.
Although stated income loans are no longer available, alternatives exist, such as SISA (Stated Income Stated Asset) loans, where income and assets verification is not required, and SIVA (Stated Income, Verified Assets) loans.
A stated income loan or no doc mortgage in which the mortgage lender checks your income with non-standard documentation. There are a variety of workers who can benefit from a stated income loan so they can buy a home, including people with seasonal income, business owners with a new business, self-employed people with little taxable income, and others. Any of these types of workers could be perfectly able to make a monthly mortgage payment but they may lack the traditional income documentation to qualify for a conventional mortgage.
A stated income mortgage is sometimes referred to a “liar’s loan” and in lending circles a “no-doc loan,” as this type of mortgage carries a higher risk because the borrower’s income is not verified from traditional documentation, like pay-stubs, W-2’s, 1099’s or1040 tax returns. Rather, the borrower is permitted to state their income on the loan application, and in most instances the mortgage underwriter does not require additional documentation to verify this information.
The stated income loans gained popularity two decades ago, as they provided a unique opportunity for borrowers with irregular income sources or those who were self-employed. These state income loans became attractive because borrowers could now obtain a mortgage without the burden of traditional paperwork and income verification documentation.
No Doc Mortgages Automate the Loan Process
One of the main advantages of stated income loans is the expedited application process. Since borrowers aren’t required to provide detailed financial documentation, the approval process is quicker, making it attractive to applicants who need streamlined financing. Additionally, these no-doc loans were frequently associated with more flexible lending requirements, making homeownership accessible to individuals who in the past may have had challenges to qualify for a traditional mortgage.
However, the risks associated with stated income loans became glaringly apparent during the housing market crash of 2008. Many borrowers had overstated their income on loan applications, contributing to a wave of foreclosures and financial instability within the mortgage industry. Lenders suffered significant losses as the true financial status of borrowers was often misrepresented.
In response to the housing crisis, regulatory measures were implemented to address the issues associated with stated income mortgage loans. The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, introduced more stringent underwriting standards and required mortgage companies to ensure borrowers had the ability to pay back their mortgages in a timely manner. In recent years, the stated income loans became less available in the aftermath of the financial crisis.
While the popularity of stated income loans has waned, there are still instances where they may be available, especially for self-employed individuals who have difficulty documenting their income through traditional means. However, borrowers should approach these loans with caution, understanding the potential risks involved, such as higher interest rates and the possibility of overextending financially.
Is It Still Possible to Get a Stated Income Loan?
Stated income loans were popular in the early 2000’s and sometimes they were abused when lenders did not carefully check income. Too many people were given these loans, and when many defaulted, it caused major problems in US and international markets. Today, stated income loans are available, but you usually need a 660 credit score and the LTV can usually not be more than 80%, so you need to bring a down payment.
Unlike traditional loans, these no income verification loans do not require tax returns or W-2s for income verification. Instead, lenders assess income through bank statements, asset documentation, or rental income. While they offer flexibility, they come with higher interest rates and stricter requirements. These stated loans are typically used by self-employed borrowers, investors, and business owners.
How Much Higher Are Interest Rates for Stated Income Loans?
Interest rates for stated income loans are typically 1.5% to 4% higher than conventional mortgage rates, depending on credit score, loan-to-value (LTV) ratio, and lender risk assessment. Because stated income loan lenders take on more risk without traditional income verification, they charge higher rates and require larger down payments (often 20-30%). Borrowers with strong credit and high assets may secure lower rates, while those with riskier profiles face higher costs.
Do Banks and Mortgage Bankers Still Offers Stated Income Loans?
For self-employed borrowers facing challenges with traditional mortgages due to variable income and stringent documentation requirements, alternative options like bank statement loans, also known as alternative documentation loans, are available. These loans use bank statements over a period (typically 2 years) to confirm income, bypassing the need for tax returns and recent pay stubs. Different lenders have their own underwriting criteria for determining net income, offering flexibility for borrowers to find suitable options.
How Do I Qualify For a Stated Income Loan?
The requirements to get a stated income loan today depends on the lender and the type of stated income home loan. For example, if you are self-employed or run a business, you may need profit and loss statements for several quarters and recent bank statements.
For a bank statement loan, you may need up to two years of bank statements. This also may be called a stated income verified assets loan or SIVA loan. For these loans if you are self-employed, you will need to show you have been in business for at least 24 months.
To get a bank statement loan, you can expect to need to meet these requirements:
- The credit score requirement is around 680. You could get approved with a lower credit score, but you will need to pay a higher rate.
- DTI will be between 36% and 45%. Some lenders may let you have a debt-to-income ratio of up to 55%, but you will have a higher rate.
- Larger down payment. You will usually need more money down, so expect at least 10% or 20%.
- Two years of steady income. Most lenders want to see a self-employed borrower with two years of stable income with two years of bank statements.
Another type of stated income loan that is available today is an asset depletion loan or asset qualifying loan. This kind of loan does not require any employment verification. Borrowers do not even need to have a job. Rather, you can qualify for the loan with your liquid assets that the lender verifies. This is a particularly popular option for retired homebuyers.
Are Stated Income Business Loans Available?
Yes, stated income business loans are also available and they do not require financial documents. These no documentation business loans typically bypass the need for income verification, proof of assets, bank statements, and tax returns that lenders usually request. Some hard money and private money lenders will also offer stated income business loans.
How Does An Asset-Based Mortgage Work?
To qualify for an asset-based mortgage, your assets will be added up in terms of cash, retirement, and investment funds. Then, your lender will determine a monthly income based on that total. Usually, the calculation is the party’s total liquid assets divided by 360, which is the number of months in a 30 year loan.
Suppose you have $1 million in liquid assets and $500,000 in retirement savings. This would give you an asset based income of $3,750 per month. Also, these assets need to be from a clear source and be seasoned. So, the lender will want to verify the source of income and see that it has been in the account for a few months. Some lenders may want to see two months, and others may require 12 months.
Personal Loans
If you cannot qualify for a conventional mortgage, another option is a personal loan. If you have a credit score of 660 or higher, you may be able to get a personal loan to help you buy a home. These personal loans are usually unsecured and people with good credit scores can get a rate of under 10% in 2024. There are stated income personal loans available to borrowers that have high credit scores.
When Should You Consider A Stated Income Mortgage?
A stated income home loan could be a good choice if you cannot qualify for or do not want a traditional mortgage, but you have ways to show that you earn enough money to qualify.
For instance, if you own a landscaping company for the last three years and wonder how to get a home loan, you may be able to qualify for a stated income loan with bank statements. However, you can expect the loan to cost you more and the interest rate may be 2% higher than a conventional loan.
Are Stated Income Loans Worth it?
Originally, stated income loans were a type of mortgage that allowed borrowers to qualify without income verification or documentation. Rather than submitting tax returns or pay stubs, borrowers simply declared or stated their income on the application, and lenders accepted their word without requiring verification through documentation such as pay stubs or W2s.
While stated income loans still exist, they have undergone significant changes. Applicants can no longer state their income on an application without providing some form of proof.
Applying for a mortgage is a pivotal moment signaling readiness to purchase a home. Unfortunately, many home loans come with stringent lending criteria that make it challenging for trustworthy borrowers, including investors and the self-employed, to secure financing for a home or investment property.
Over the years, the mortgage industry has evolved, creating more loan opportunities for various borrower types. Today, it is possible to get a stated-income home equity loan or HELOC if you meet the credit score and loan to value requirements. Learn more about HELOCS and personal loans.
Investors, small business owners, and independent contractors face challenges securing traditional mortgages due to their unique financial situations. These individuals may take deductions on their tax returns, reducing their taxable income, and may experience seasonal income fluctuations affecting their eligibility. Bank statement loans have become very popular in 2024 for home buying refinancing and 2nd mortgages.
Benefits and Risks of Stated-Income Mortgage Loans
Benefits:
- Stated income loans allow borrowers to qualify when conventional loans may not be suitable.
- No need to provide tax returns for qualification purposes.
- Mortgage rates remain competitive for loans with reduced documentation.
- Stated income lenders may require as little as 10% down.
- No Private Mortgage Insurance (PMI).
Risks:
- Bank statements may still be required.
- Government programs like FHA do not apply; there is no stated income FHA loan.
- Rates can be higher, especially with lower credit scores.
- Most traditional lenders and banks do not offer the program.
- If you cannot fully document your income, this loan program may be necessary. Refinancing in the future is possible without a prepayment penalty.
- The stated income loan is an ideal option for real estate investors seeking a reduced documentation experience without compromising on higher rates and short terms, such as a bridge loan or hard money loan.
Smart Lending has helped borrowers secure stated income loan programs from top lenders for over 20-years. We assist you in finding industry leaders in the mortgage industry. It is advisable to consult with us to understand the specifics of the program and guidelines in your state, ensuring the best possible outcome for your situation. We assist individuals in securing stated income loans on a daily basis.
Takeaways on Stated Income Loans
While stated income and related loans are not as available as 20 years ago and lending standards have tightened, they are still available. If you cannot qualify for a traditional mortgage because of seasonal income or you are self-employed, one of the stated income loans in this article could be the ticket. So talk to your lender today about your stated income loan options.
In most cases, the stated income loan is a mortgage option where borrowers can state their income without providing the usual documentation. While these loans offer an expediated loan process, but typically they come with a higher interest rate and increased closing costs.
Since the financial collapse more than a decade ago we have seen increased regulatory scrutiny and that has created a diminished demand the mortgage market because less lenders are willing to consider these risks. So consumers seeking stated income loans should carefully consider the potential costs, benefits and risks.
