Stated-Income

Credit Guidelines for Stated Income Home Loans

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Credit Guidelines for Stated Income Home Loans-STATED-INCOME.COMThe housing crisis of 2007 made stated income loans a thing of the past. They were single handedly accused of being the reason for the crisis and were therefore removed from the market. Since then, however, these loans have made a slow comeback for a small portion of the community. Not everyone will qualify for this niche home loan product because of its strict requirements thanks to the new Dodd Frank regulations that all banks must ensure that a borrower can effectively afford a mortgage, but many people still qualify. One of the most important aspects of a borrower for this type of loan is the credit score. Plain and simple – bad credit will get you nowhere.

Minimum Credit Scores

Since there is not any regulation regarding stated income loans, there is not one specific credit score that will qualify or disqualify you for this type of lending – it is up to each individual lender. The lenders that are willing to step out on a limb and not offer Qualified Mortgages are taking a risk because they are no longer provided the guarantees that the QM guidelines offer including the ability to sell the mortgage on the secondary market or protection from litigation from borrowers. Because of this, it is up to each bank’s discretion what credit score they consider high enough to signify financial responsibility.

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As a general rule of thumb, however, most banks will not consider a stated income loan with a credit score lower than 700. The only exception to this rule would be if you had serious compensating factors to make up for the lower score and lack of verifiable income. Compensating factors in this case typically include:

  • Large amounts of reserves in the bank
  • A large down payment (more than 30 percent)
  • Low debt ratios based on the stated income on the application that coincides with the reserves in the bank

If you wish to pursue stated income loans because you cannot verify your income in a way that will enable you to obtain a conventional loan, you need to make sure your credit is in order. If you have many late housing payments or even installment loan payments made late in the last 12 months, it is best to wait until those are at least 12 months behind you. This gives you time to increase your credit score while making timely payments in order for a lender to take your application seriously as it is very high risk for them to offer this non-qualified loan.

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Stated Income Loans: Qualified Mortgage

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USDA Income Eligibility (1)Many people think stated income loans no longer exist. Well, not only do they exist they have some new regulations. These regulations were put into place so lenders so they could offer mortgages, however, they have stricter guidelines regarding debt-to-income, proof of income and they got rid of features like interest only payments and negative amortization. These loans are known as Qualified Mortgage or QM. Lenders who choose to fund these loans can benefit significantly. Lenders can sell loans to investors as mortgage-backed securities and offer more protection against litigation in the event a borrower defaults on their loan. These make qualified mortgages a very popular choice and many lenders choose to work with this type of loan more than others. QM loans aren’t for everyone, and some lenders will take the extra step to provide options for borrowers. Some lenders that offer loans won’t require a borrower to provide their income with tax returns, those lenders may be known as alternative documentation loans or alterative-income verification loans.

These loans are commonly known as stated income loans and applicant who attempt to get an approval for these loans do still need to prove they can financially afford the home they are trying to purchase. Many choose to provide the lender with their bank statements. Bank statements can show the lenders exactly how much money is coming in and going out. This helps the lender get a good understanding of the borrower’s cash flow. Bank statements also show the borrowers reserve, meaning, money available to make the house payment in the event income were to be suspended. Lenders typically like to see exceptional credit score, and a borrower’s FICO score should be at least a 700 or higher, but some lenders will accept a score as low as 620. If a borrower can prove they can provide enough income to supplement 12 months’ worth of mortgage payments a lender will usually try to work with them. Applicants shouldn’t expect to buy their property with a low % down. Majority of the time these types of loans are subject to a down payment of at least 20%, but 25%-30% is more accurate. Rates will typically range .50 to .75% higher than those of fully documented QMs.

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Stated Income Loans for Borrowers Self Employed

The standard for QM’s requires that a borrower provide proof of at least 43% DTI (debt-to-income) ratio. This means no more than 43% of the applicant’s gross income can be used for housing expenses. This includes all other obligations the borrower may need to pay for, such as; car payments, credit card payments, student loan payments, etc. This must include the principal amount, interest, taxes, and insurance. Note, that ratios can get confusing for a borrower with higher income and more resources. Some lenders offer “Jumbo Loans” with a 55% DTI ratio, while other will only allow interest only payments. Both options are available to high income borrowers who could get their income in a lump sum like an annual bonus. This loan can allow borrowers lower payments as well throughout the year and larger ones when borrowers happen to have more money.

Finding a Stated Income Mortgage

Even though these loans are slowly becoming more common they certainly aren’t considered “mainstream”. These loans are more likely offered by smaller lenders. Borrowers can research non-conforming loans, not ratio loans, non-qualified mortgage loans or portfolio programs to find which option is best to fit their needs. It’s also a good idea to shop around for your lenders and always compare their programs and costs to find which program, loan, and lender will best fit your situation, want and needs.

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How Do Stated Income Mortgages Work?

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How Do Stated Income Mortgages Work- The mortgage industry is a very complex place to attempt to navigate, today there are so many different types of loans available. One loan you may have heard through the mortgage market buzz is that stated income loan. A stated income loan is basically exactly what it sounds like. Instead of showing their lender documentation of their income and assets a borrower can simply tell (stated) the lender what their income is and their loan would then be based on that.

These stated income loans were made to help make it easier for self-employed borrowers get into a home loan. Since self-employed individuals can have a harder time putting together the documentation needed, having the option for a stated income loan made it much easier for those borrowers to apply.

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Employed VS Self-Employed

For borrowers who are employed, showing income is usually a simple process of just providing the lender with their pay stubs or W-2 forms, but for someone who is self-employed showing proof of income can be remarkably more complicated. By offering stated income loans to self-employed individuals it can move the process along faster.
Allowing people to be approved for a loan without requiring more documentation can create an opportunity for people to take advantage of the program and get into a loan for which they are not truly qualified. Because of this, stated income loans have become much rarer in recent years. Very few lender still offer a stated income mortgage.
The new standard for stated income loans is, if you’re self-employed you can no longer just “state” your income when you apply for a mortgage loan. Now lenders will ask to see tax returns for the last 3 years. If you’re self-employed and interested in being approved for a loan, you’ll need to speak with your bank or credit union to see what exactly will be required for approval.

Stated Income Loan Rates

Stated income loans usually have a higher interest rate than other loans because of the potential risk taken on by the financial institution. A stated income mortgage could have an interest rate that is .25% to .50% higher than a normal mortgage rate. These loans also usually require a larger down payment. A stated income mortgage generally would not be approved without at least 10% to 15% of the purchase price to be paid as the down payment, sometimes even higher. Specific requirements vary from lender to lender.

Stated income loan were a lot more popular than they are today, but they are making a slow comeback. The drastic fall of stated income loans was because of the increased risk lenders and financial institutions took on. If you’re interested to find out if you can qualify for a stated income loan or just have general questions about it, contact a lender today.

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No Doc Loans

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NO DOC LOANSYou may have heard through the mortgage market buzz about stated income loans, well these loans can also be known as No Doc Loans. The No Doc Loan is a version of the stated income loan. The No Doc Loan is basically a program that doesn’t require any income, asset, or credit score information when the lender makes the decision as to whether or not an individual qualifies. Unlike the stated income loan, the No Doc Loan allows businesses and LLC companies to borrow and with a big enough down payment or enough equity in your current home it is possible to qualify for a no doc loan.

Getting Approved For a No Doc Loan

One of the main and most important requirement needed for approval, is your current home MUST have enough equity in it and the other important factor is, you have to have a decent credit history. No Doc Loans can be used to refinance your current mortgage or to buy a new home. There is a No Doc Second Mortgage program available to borrowers who qualify as well. Some of the No Doc Loan Programs can be found below.

Available No Doc Loan Programs:

  • No Doc ARM Loans

No Doc Fixed-Rate Loans:

  • 15 years to 30 year loans available for investment properties

Maximum No Doc Loan Amount:

  • $2,000,000.00

No Doc Loan Available Property Types:

  • Single Family Homes
  • Condos
  • Townhouses
  • Duplex

No Doc Loan Eligible Borrowers:

  • LLC’s
  • Partnerships
  • Corporations
  • Individuals (Married or Joint Applicants)

No Doc Loan Credit Requirements:

  • No(pending) Collection Matters over $5,000
  • No Litigation in the past 5 years
  • Prior Foreclosure or Bankruptcy Permitted
  • Any Recent Repossessions Considered on Case by Case Basis
  • No Doc Loan Restrictions

The Down Side to No Doc Loans

If you’re interested in an investment property that has more than 1 unit, such as a duplex, the limit for a No Doc Loan is 1 for a 4 unit residential property. Condo projects much adhere to standard condo project eligibility and must be warrantable. The No Doc Loan doesn’t accept tear down properties either, habitable properties in good repair only. Any properties owned for less than 6 months are not eligible to be refinanced. The Cash-out option is also unavailable with the No Doc Loan. Lastly, properties with over 10 acres are not permitted.

Click the link below to be matched with a lender who can help you with all your No Doc Loan needs and can answer any questions you may have. Be sure to shop around to multiple lenders, not every lender will offer the No Doc loan program and guidelines will vary lender to lender.
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Stated Income Mortgages – Are They Still Available?

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Stated Income Mortgages – Are They Still Available?
Stated Income Mortgages – Are They Still Available_

Stated income mortgages quickly became a thing of the past after the Housing Crisis of 2008. Lenders were no longer accepting the “smoke and mirrors” type lending where borrowers said they made a certain amount of money, when in reality they did not and could not afford the loan. After that crisis, new loan regulations were put into place and it became much more difficult to get any type of loan, which made stated loans null and void. Today, however, they are making a slow comeback but with a different angle – they are not as easy to obtain in order to ensure that these loans are landing in the hands of the right people – the people that can afford them, but they are available to people that can demonstrate responsible use of their money and that can prove their income in other ways, rather than the standard paystub and W-2.

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Qualified Mortgages

The end of the stated income mortgages came about when Qualified Mortgages became a big deal. QM loans are those that are offered to borrowers that can show without a doubt that they can afford the loan being provided to them. Loans that fall under this category have certain characteristics that show your ability to repay the loan. In general, these loans have a debt-to-income ratio lower than 43%, show adequate assets/reserves, and have a great credit score, which means above 700. In addition, these loans do not have periods of interest only payments; balloon payments; or any type of negative amortization – they are straightforward 15 or 30-year loans with standard amortization. These loans cannot have a term that is longer than 30 years or have upfront costs for the loan that are excessive. These loans were the only mortgages seen on the forefront of the lending industry for a while, but this excluded a large portion of the economy as there are many borrowers that do not fit the standard mold, which is when stated income loans started coming back because “rich” people, those with their own company, and those just starting out in life were left in the lurches when it came to buying a house.

Stated Income does not Mean no Qualifications

Today, stated income does not mean that you do not have to prove that you can afford the loan as it did in the past. Lenders are finding ways to prove this with other methods. For example, if you are self-employed and your tax returns do not show adequate income because of the write-offs you use, standard lending will not enable you to get a loan. However, if you have the income and can prove it with bank statements and excellent credit scores, then you will have an easier time trying to convince a lender that you are worthy of a loan because you show a history of paying your bills on time as well as bank accounts with adequate reserves.

Just how much do you need to qualify for a loan today? Every lender will be different with their requirements. Some lenders will need to see at least 12 months of principal, interest, taxes, and insurance in your bank account in order to qualify you for the loan, while others will want more or less than that. As far as credit scores go, many lenders want you to have a score that is at least 700 or higher in order to qualify for a non-income verified loan. In addition, most lenders will not allow a high loan-to-value ratio on stated income mortgages. Instead, they will need to put down a significant down payment, typically at least 20 percent in order to be considered.

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The Reason for the Change

Many people wonder just why lenders would stick their necks out again after what happened with the housing crisis. Shouldn’t lenders only give loans to those that can prove they have the income to afford them? While in reality this makes sense, it leaves the millions of Americans that were forced to leave their employment and become self-employed without the ability to purchase a home. Since this makes up a large portion of the people that would otherwise be purchasing homes, it could hurt the housing industry in the end. These “little guys” need to get out there and be able to purchase a home and they are making a name for themselves; they just might not show it on paper at the moment. This is especially true for those that are just starting out and write off every expense they can on their tax returns in order to decrease their tax liability so that they can keep their income and pay their bills. Since they do that, lenders look at their tax returns and think they make next to nothing, when they do – it just does not show up on paper. Why should these workers be punished after they are doing the economy a favor by producing products/services and generating an income? This is why stated income mortgages have made a comeback with a slight twist.

Big Banks are the Heroes

The biggest problem seen out in the mortgage industry when it comes to stated income mortgages is who is going to purchase them? The secondary market wants nothing to do with these mortgages as they were a large part of what caused the problems in the first place. This is why you will not see the common lenders providing stated income loans, because they do not hold onto their own portfolio – everything gets sold. Larger, private banks however, are keeping these loans in their own portfolio. These are the lenders you need to seek out if you want to get a stated income loan. There might be a handful of private investors that are willing to take the chance and purchase stated income loans, but for the most part it is the private banks that keep them on hand and manage these loans themselves that provide the most success for the self-employed.

Figure out your Compensating Factors

Before you apply for a stated income mortgage, it is important to look at your entire loan profile. Starting with your credit – do you have excellent credit scores? Is your credit history clean, meaning that you have no late payments within at least the last 12 months? These are things the lender is going to look for as they need to make sure that you are not a credit risk at all. Typically a score below 700 by even one point will render you ineligible for a stated income loan. In addition, you will need to prove your worth with your assets. Verifiable bank statements will need to be provided in order to ensure the bank that you have not only enough to afford the loan on a monthly basis, but that you have backup reserves in the event that something were to go wrong.

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Offer Letter Loans

Another version of stated income mortgages that lenders are now able to offer are the Offer Letter Loans. These loans are perfect for those that are changing jobs (relocating), recent college graduates starting their first job, and those that are going back to work after being laid off for a period of time. Offer letter loans work in a similar fashion to stated income mortgages as the lender is relying on the offer letter provided by the employer to qualify you for the loan. There are no paystub or W-2 requirements in order to qualify. There are some strict criteria that must be met however:

  • There must be an offer letter that is non-negotiable or contingent and it must be signed by both the employer and the applicant
  • The job must be starting within 90 days of the loan closing; this must be proven
  • The loan must be for an owner occupied primary property
  • It must be a single family property (home, condo, or townhome)

In addition, the borrower will have to provide proof of adequate assets. The amount required will depend on the length of time between the loan closing and the date the applicant starts his new job. There should be enough assets to cover the principal, interest, taxes, and insurance for the time period that the applicant will not be working in addition to at least 3 months of reserves in the event that something were to go wrong.

As you can see, stated income mortgages are making a comeback, just in a different format than they were once offered. Lenders still need to make sure that they are not providing loans that they know the borrower cannot afford as the lender could find themselves liable for costs that pertain to the violation of the Unfair Lending Practices set forth by the government. Taking extra precautions by asking for adequate proof of reserves as well as requiring excellent credit scores is just the first step in ensuring that a borrower can afford a loan without difficulty.

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