Stated-Income

How to Qualify for a Mortgage With Assets and no Income

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What happens if you can afford a mortgage, but you don’t have an actual ‘income?’ Maybe you live off your investments or you have an inheritance. Since the Qualified Mortgage Rules require lenders to verify your income, it seems like you can’t get a loan. However, you are in luck, because there is a way. It’s called the Asset Based Loan

How the Asset Based Loan Works

As the name suggests, you qualify for the loan based on your assets. The lender will work the process slightly backwards.

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They start with your total assets. Let’s say you have $1,200,000 in a liquid account. The lender then takes 70% of that amount. In this case, it’s $840,000.

From that amount, the lender will subtract any money you need for a down payment and closing costs. Let’s say in this case you need $20,000 for closing costs and the down payment. That leaves you with $820,000.

Finally, the lender divides the remaining amount by 360 payments, if you are applying for a 30-year loan. $820,000/360 = $2,277. This is the amount of gross monthly income lenders can use to qualify you for a loan.

The Type of Assets you Can Use

Not every asset will qualify you for this type of loan. Lenders can decide what they want to accept. In general, however the following accounts qualify:

  • Lump sum retirement funds
  • 401K accounts as long as you are fully vested and of retirement age
  • Stocks, bonds, and other legal investments
  • Lump sum payments received as a result of any type of employment (except self-employed)
  • Savings
  • Inheritance
  • Lottery winnings
  • Lawsuit winnings

Fannie Mae Rules for Asset Depletion Loans

Fannie Mae provides a majority of the asset depletion loans. Fannie Mae allows a maximum 70% loan-to-value ratio on loans that use assets in the place of income. This means you need a 30% down payment plus the closing costs. This could take a large chunk off the assets you use for qualification purposes.

Because you’re only using assets rather than ongoing income, you’ll need at least a 620 credit score. This is according to Fannie Mae, though. Many lenders may require an even higher score in order to qualify. Many lenders base the requirement on your debt ratio. If you have a higher debt ratio, you’ll need a higher credit score to offset that risk. If you have a lower debt ratio, a lender may be willing to accept a lower credit score.

Using Retirement Funds Before Retirement

If you plan to use 401K funds before you are 59 ½ years old, you’ll need to take into consideration the penalty you’ll pay. Let’s use our above example of 1,200,000 in assets.

Let’s say $900,000 of it is in a 401K and you are only 55 years old. You can use the funds, but you’ll pay an early withdrawal penalty. Before you do the above calculations, you must take 10% off the $900,000. This accounts for the penalty you’ll pay. You’d lose $90,000 right off the bat. This reduces your effective income and therefore the amount you can borrow.

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You’ll also owe taxes on the amount you withdraw before age 59 ½. Keep this in mind if you plan to use retirement funds to pay your mortgage.

Using Asset Depletion Just for Qualifying

Some borrowers need to use the asset depletion method just to qualify for a mortgage, but they don’t need to use those funds. This happens commonly with self-employed borrowers. They often don’t show enough income because of the number of tax write-offs they take. Lenders would otherwise turn them down if they didn’t have assets to help them qualify for the loan.

These borrowers don’t need to use the assets to pay their loan. They just need them to qualify on paper. In this case, even if you are under retirement age, you can still use your retirement funds to qualify for the loan. If you don’t actually withdraw the funds, you don’t pay a penalty.

On paper, though, you’ll have to decrease your assets by 10% because you would incur a penalty if you used the funds. This just decreases the amount you qualify to receive. Keep this in mind as you attempt to qualify for a loan.

You can qualify for a mortgage without any income. It requires you to get your assets in order, though. Take inventory of all of your assets and their source. Stocks, bonds, CDs, savings accounts, and retirement funds are the most common. Almost all lenders will only use 70% of any account balance, so keep that in mind as you determine how much you may qualify to receive. Asset depletion loans can be Fannie Mae loans or subprime loans.

Take your time and shop around. Look for the lender with the best rate and also the best terms. You may find a subprime lender that provides better terms than a Fannie Mae lender in some cases. Do your research and find the loan that works best for you.

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Will Your Bonus Income Count on Your Home Loan Application?

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You make bonus income, so you automatically think your total income will count for mortgage qualification. Unfortunately, you might be wrong. There are only certain circumstances that lenders will allow the use of this time of income.

We’ll review these situations for you below.

What is Bonus Income?

First, let’s look at the definition of bonus income. It’s income you receive above and beyond your regular salary. It doesn’t matter if your receive salary, hourly, or commission income. If you receive something outside of what you expected, it’s a bonus.

How Do Lenders Look at Bonus Income?

Now comes the tricky part. How do lenders look at this income? Can you just add it to your total income for the year?

Unfortunately, lenders don’t often use bonus income and you can’t just add it to your total income. If a lender uses it, they will need an average over the last 2 years, at a minimum. This is because bonuses are not consistent income. You can’t count on them like you can count on your salary or hourly income. They can go just as fast as they came without a word of warning. Lenders like to see consistency when figuring out your income and this is one instance that is not consistent at all.

Consistency is the Key

If you want a lender to use your bonus income for qualifying purposes, you must have a history of receiving it. At the very least, you’ll need 2 years of receipt of the same amount or more. If the bonus was less the second year, the lender will determine how much less. If there is more than a 20% decrease, the lender won’t count it at all.

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Again, they need consistency. Regular income is consistent. The lender can rely on it. This is what they use to calculate your debt ratio. Income that you might or might not receive every once in a while is not consistent. Lenders usually won’t use it for qualifying purposes.

However, if you have a history of receiving the bonus over several years, a lender may use it. Let’s say your employer, who you’ve been with for the last 5 years, always gives you a Christmas bonus. You receive the bonus around the same time each year and for the same amount. This last year, your employer even increased the bonus. In this case, a lender will likely allow its use.

Now, let’s say you have been with the same employer for 10 years, but this last year was the first time he gave you a bonus. There’s no consistency or history there. Most lenders won’t use this income for qualifying purposes. They may, however, use it as a compensating factor. We will discuss that below.

Bonus Income as a Compensating Factor

Sometimes borrowers are on the border of being approved and denied for a loan. Maybe their debt ratio is right on the fringe or their LTV is pretty high. A lender teeters between approving and denying the loan. As they go through the file, they see sporadic bonus income. This might help push them towards approval rather than denial. That bonus income can be seen as a way to help get the mortgage paid if the borrower has financial trouble.

You can look at is another positive factor in the loan file. Of course, it’s up to the lender’s discretion. Compensating factors are not something that Fannie Mae, the FHA, or VA governs. If a lender feels the income can help the borrower pay their loan on time, they can use it.

How Lenders Calculate Bonus Income

Another surprise you might be in for is how lenders calculate this income. You can’t just say that you got a $2,000 raise and increase your income by that amount. Instead, you’ll need to show a history of receipt of the income. The lender will then take a 24-month average of the bonuses.

Let’s say you do receive a $2,000 bonus this year. But, last year you received $1,500. The lender will average the income over 2 years. It comes out to $1,750 per year on average. The lender then divides that amount by 12 to get a monthly average. In this case, it would add $145 to your monthly income.

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Different Lenders Have Different Opinions

This doesn’t mean that every lender will use your bonus income if you receive it for 2 years. They have to be convinced that it’s a regular thing. They may quiz your employer on the income when they request the Verification of Employment. They want to get a feel for the income and why you received it. Was it a particularly good year for the company so they rewarded their employees? Maybe it was a one-time reward that won’t repeat itself.

Just like your regular income, lenders want to know any additional income will continue for the foreseeable future. If you are close to an approval, but not quite perfect, a lender may be leery of using this income. If they push you too hard, you might not be able to afford the loan in a year or two down the road.

If you have bonus income, make sure you get as much proof of it as you can. At the very least, make sure you have at least 2 years’ of income receipt. You should also make sure you have ample proof of its origination and when and if it will continue. If you get to use it, consider it a “bonus.” It might give you the edge you need to secure loan approval.

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The Role of Bank Statements in Successfully Getting a Mortgage

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Computing

Whether you are applying for a stated income or a traditional mortgage, your loan officer could ask for your bank statements. These documents are used to verify and document your income. Lenders are required to do their due diligence on your ability to repay your debt and your bank statements and other asset documentation will prove that.

Because most loans are underwritten via an automated platform, e.g. Desktop Underwriter®, the need for bank statements may crop up during underwriting. Nontraditional loans such as bank statement loans are based off on the flow of money into bank accounts so that they go hand in hand with the loan application.

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Bank Statements and the Mortgage Process

When making loans, lenders must ensure that the borrower has the capacity to pay the debt to be incurred. They would look into the income of the borrower to make this determination.

Moreover, lenders need to check if the borrower has enough assets (readily convertible to cash) that can cover the down payment, closing costs, and reserve requirements.

Bank statements can cover both for the lenders in their quest to track the assets and income of the borrower. They are also helpful in verifying the identity of the borrower and the information as it pertains to asset accounts set forth on his/her mortgage application.

Usually, lenders look at deposits that fall outside of the declared income source of the borrower, e.g. an unexplained large deposit used for down payment. Or it could be recurring withdrawals that pertain to an undeclared debt obligation.

Mortgage borrowers like you can present your personal bank statements. If you are self-employed or are a majority owner of a business, both personal and business bank statements may be required.

Bank Statement Loans

These loans perfectly sum up the role of bank statements when applying for mortgages.

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Niche lenders who make these mortgages usually require personal/business bank statements for 12 consecutive months, thus dubbed as 12-month bank statement loans.

These lenders recognize the struggle of self-employed borrowers to have their real income verified because of write-offs on their federal tax returns. Interestingly, some bank statement loans don’t require tax returns and their related tax transcripts.

What’s important for the lenders is a reliable, steady cash flow that they will use to calculate income. To arrive at income, lenders take the average deposits during the given period, net of debits and withdrawals.

They will then take into account recurring monthly expenses to get average monthly income. From the average monthly income and recurring monthly expenses, they can come up with the debt-to-income ratio of the borrower.

Indeed, good credit, liquid reserves, and provable income via bank statements are the main ingredients to a successful bank statement loan.

As with any other loan, expect to meet loan-to-value ratios, down payment requirements and asset reserves as well.

Don’t estimate the power of bank statements especially if you have difficulty getting financing under standard mortgage programs. You can always look at alternative or nontraditional loan products like bank statement loans.

Happy shopping!

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Is it a Mistake to Change Jobs Before Buying a House?

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Thinking

Job stability isn’t what it used to be. Many people change jobs frequently. But, what happens if you take a different job before you buy a house? Can it leave you without a mortgage? We discuss the implications below.

How Important is Job Stability?

You might think of job stability as finding the job that pays you the most. Your lender may look at it differently, though. They want someone that shows reliability. A person that hops from job to job isn’t reliable in the eyes of a lender.

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There are exceptions to the rule, though. You aren’t stuck at your same job forever. If a better opportunity comes along, it may be worth it to take it. Before you take it, consider the industry and the pay. They both play a role in your ability to secure a loan.

The Industry You Work in is Important

Lenders like to see consistency. This doesn’t mean working at the same mundane job year after year. If you change jobs, they like to see it within the same industry though. Here are 2 examples:

  • John works as a teacher for 3 years. He decides he is unhappy at that school so he changes jobs. He decides to become a real estate agent. He also applies for a loan 2 months after changing jobs. He might face difficulty because of the drastic change in industries.
  • Jan works as a teacher too. She decides after 3 years that she wants to go for a job as a principal. She gets the job, but at a different school. She too applies for a mortgage just 2 months after changing jobs. Jan has an easier time because she stayed within the same industry.

You might wonder why lenders care so much about the industry. It just makes sense, though. If you change like John did from teaching to real estate, you don’t have a lot of experience in real estate. Who is to say that you will succeed in that new career? John is seen as a risky borrower.

Jan, on the other hand, stays within the same industry. Yes, she changed jobs, but she has experience in the industry. Her job change was just an upward movement, not something completely drastic. The chances of her succeeding are much higher than John’s chances.

The Pay Structure Plays a Role Too

Sometimes staying within the same industry isn’t enough, though. Lenders care about your pay too. For example, going from a salaried employee to a commission employee is a whole new ballgame. Lenders look at this as risky. They would rather see a 2-year history of the commission income before giving you a loan.

If you do change jobs before getting a loan, try to keep within the same pay structure. If you are an hourly employee, switch to another hourly paid job. However, this is one case where going from hourly to salary wouldn’t be a bad thing. Lenders look at salary as the least risky because your income is predictable. It might even be more predictable than your previous hourly job.

If you are currently as a salaried employee, stick with another salaried job. Switching to hourly, commission, or bonus income only makes you look riskier. Lenders prefer that predictable salaried income. If you do switch, be prepared to wait until you have at least 2 years of the new income before applying for a loan.

The Worst Job Change You Could Make

Honestly, there is one job change you should not make before applying for a loan. If you consider going from a salaried or even commissioned employee to an independent contractor or entrepreneur, don’t. This isn’t to say that becoming your own boss isn’t a great thing – it could be. But, it could also leave you without the ability to secure a loan.

There are very few, if any lenders out there that will give you a loan just after starting your own business. At a minimum, lenders need 1 year of self-employment income to qualify you for a loan. Most lenders, however, require at least 2 years before they’ll consider your loan application.

So is it a mistake to change jobs right before taking out a loan? It depends on the circumstances. No two borrowers will have the same answer. For the borrower going from salary to commission, we caution you to wait. The same is true for any borrower wishing to open their own business. If you do, be prepared to wait at least 2 years.

Any other job change, however, might be okay. It’s best to talk to your lender first. See what they say. If you don’t like their answer, shop around. Get a variety of answers from different lenders. Then you know exactly where you stand.

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What Debts are Excluded from Debt Ratio Calculations?

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Debt ratio calculations aren’t as complicated as they seem. You only include the debts on your credit report. Of course, there are exceptions to every rule. Read on to learn about debt ratios and what you should expect to include in yours when applying for a mortgage.

What is a Debt Ratio?

The debt-to-income ratio is the measurement of your outstanding debts compared to your total income. It helps lenders determine how likely you are to pay the mortgage loan back. Each lender and loan program has its own debt ratio requirements. Generally, you’ll find DTI requirements to be between 28 and 43%. It depends on the type of ratios you are talking about.

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What’s the Difference Between the Front and Back-End Ratios?

You’ll hear lenders talk about two different ratios – the front and back end ratios. The front-end ratio is the comparison of the mortgage payment to your gross monthly income. Your mortgage payment includes principal, interest, taxes, and insurance. This includes PMI or MI if you owe it. The following front-end ratio maximums apply to the various loan programs:

  • Conventional – 28% maximum
  • FHA – 31% maximum
  • USDA – 29% maximum

The back-end ratio includes your total debts. Not only must you include your mortgage payment, but also your other monthly debts. Think of things you pay like your car payment, student loans, and credit cards. Lenders use the minimum payment for each debt when determining your back-end debt ratio. You may also hear this called the total debt ratio. Just like the front-end ratios, different programs have different back-end ratio maximums allowed:

  • Conventional – 36% maximum
  • FHA – 36% maximum
  • USDA – 41% maximum
  • VA – 41% maximum

You may have noticed that the VA doesn’t have a minimum front-end ratio. Technically, they don’t have strict debt ratio requirements. They focus more on the disposable income borrowers have at the end of the month. Any money you have left after you pay your monthly bills is your disposable income. The VA requires a specific amount of disposable income in each area of the country. This is how they help decrease the amount of defaulted loans.

What Debts are Included in the Debt Ratio Calculation?

Now we’ll look at which debts are included in the debt ratio calculation. Luckily, it won’t’ be every debt you have. We’ll discus the exclusions below. For now, let’s focus on what they do include:

  • Installment debt – Lenders must include any debt with at least 10 payments remaining. This includes auto and student loans.
  • Revolving debt – Lenders use the minimum payment required as stated on the credit report. If the credit report doesn’t show a minimum payment, the lender may use up to 5% of the outstanding balance.
  • Personal lines of credit – Lenders treat personal lines of credit the same as credit cards. They use either the minimum required payment or 5% of the outstanding balance.
  • Unreimbursed employee expenses – If your income is comprised of more than 25% commission, it affects your DTI. Lenders must look at your tax returns to determine the amount of expenses you that are not reimbursed.
  • Alimony/Child Support – Any legal agreements for alimony or child support affect your debt ratio. The lender must include the required amount in your monthly debts.
  • Business debts – If you own a business and can’t prove that the company pays the business expenses, it may affect your debt ratio.
  • Deferred debt – Even if you don’t currently owe money on your debts, but will in the near future, lenders must include a payment in your DTI.
  • Lease payments – Even if you only have a few lease payments left, it must be included in your DTI. Lenders assume it will lead to another lease agreement and affect your DTI.

What Debts are Excluded from the Debt Ratio Calculation?

You must include numerous debts in the debt ratio calculation. But, there are many you don’t have to include. Following are the most common exclusions:

  • Cosigned debt – Cosigning on a loan doesn’t mean you are responsible. If you can prove you don’t pay the bill, the lender may not include in your debt ratio. But, you must prove you aren’t the responsible party. You can do this with bank statements from the party paying the bill. They must show timely payments from their own account.
  • Voluntary alimony or child support – Only court ordered payments must be included in the debt ratio. If you voluntarily make payments, you don’t have to disclose it to your lender.
  • Business debts – If you have ample proof that the company pays your business debts from its own funds, you can exclude it from your debt ratio.
  • Wage garnishments with less than 10 months left – Wage garnishments typically affect your debt ratio. But, if you have fewer than 10 payments left, you can disregard it.
  • 30-day accounts – Credit cards, such as American Express, that require full payment within 30 days don’t affect your debt ratio.

In addition, you don’t have to include daily living expenses including utilities, food, and clothing. Only debts that report on your credit report matter. However, if you make these payments with a credit card, they will ultimately affect your DTI in the end.

What Significances Does 43% Have in the Debt Ratio?

No matter the requirements each program has, lenders are held to a strict 43% maximum DTI rule. It’s called a Qualified Mortgage. Lenders that lend money to borrowers with a DTI higher than 43% may not have the protection of the QM guidelines. This allows borrowers the ability to take legal action against lenders when they can’t afford their loan payments. Not many lenders are willing to take the chance with a DTI higher than 43%, though.

You may even find different lenders that calculate the DTI differently. It’s always important to shop around and find the best deal. Certain debt ratio calculations are required by specific programs, such as Fannie Mae programs. Others are lender specific and can be worked around by shopping with different lenders. Make sure you find the loan that works the best for you and your financial situation.

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Understanding the Debt-to-Income Ratio

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Understanding the Debt-to-Income Ratio

You may have heard of lenders offering jumbo loans for borrowers with 55% DTI. DTI stands for debt-to-income ratio, a loan metric as important as your credit score. For stated income loans, the DTI might not figure out that much compared to the size of the down payment and cash reserve and the level of the credit score. Nevertheless, it shows how much you owe relative to how much you earn and could cause lenders concern about your ability to repay your mortgage.

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Two Types of Debt-to-Income Ratio

There are two ways lenders look at and compute your debt-to-income ratio.

1. Front-end ratio. This calculates how much of your gross income, expressed in percentage, goes to housing. Thus known as the housing ratio, it takes into account the monthly payments on any mortgage (first and second), property taxes, homeowner’s insurance, mortgage insurance, and homeowners’ association fees, as applicable. Utilities are not included.

To calculate, divide the gross housing costs by the gross income, multiply by 100. Say your housing-related expenses total $4,000 and your monthly income is $10,000, your front-end DTI is 40%.

2. Back-end ratio. Also known as the total debt-to-income ratio because it sums up the housing expenses; all debts requiring monthly payments, including car loans, student loans, credit cards, mortgages on other properties and related taxes, insurance and HOA fees; child support; alimony; and more.

For example, your housing expenses plus your other monthly debts add up to $5,500. Divide this by $10,000 and multiply 100 and you’ll get a total DTI of 55%.

What Is (Not) Considered Debt?

For a more accurate DTI, it must take into account all the monthly payments you make. The following obligations are not considered debt and are thus not subtracted from your gross income as listed by the CFPB:

  1. Automatic deductions to savings accounts
  2. Child care
  3. Commuting costs
  4. Federal, state and local taxes
  5. FICA (Federal Insurance Contributions Act) or other retirement contributions, e.g. 401(k) accounts
  6. Open accounts with zero balances
  7. Union dues
  8. Voluntary deductions

Lenders and loan programs will still vary on calculating qualifying ratios for a mortgage. Always ask lenders. You can find them here.»

DTI for Stated Income Loans

There is no set maximum DTI ratio for stated income loans. It’s possible to have a DTI ratio of the total monthly income to the total monthly debt beyond 43%, all things considered.

Back in the days when the original stated income loans were all the rage, lenders were more strict with DTI. It’s because the income stated on the loan must have a DTI whose numbers add up.

There’s also the issue of the income matching the job description of the borrower. As in the case now, if your stated income is too high for your position, the lender may deny your loan application or ask for further documentation, making it a full doc loan.

Needless to say, your DTI should match your stated income.

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Does Adding a Co-Borrower to Your Mortgage Make Sense?

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Does Adding a Co-Borrower to Your Mortgage Make Sense?

The concept of adding a co-borrower is a common practice in the mortgage industry. It’s a practical move to share the costs of holding a mortgage or help you qualify for a bigger loan that you might not be approved on your own. In the initial or later stages of mortgaging, you can put in another name as a borrower to your loan.

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During the Application

When you ask a spouse, a friend or a family member to sign up on a mortgage with you, you are basically “pooling” all your income, assets and credit history together.

With the ability to repay rule in place, lenders are required to do a capacity check requiring traditional or alternative documentation as in the case of stated income loans. In the course of this verification, they might find that your monthly debts relative to your monthly income, as measured by the DTI ratio, is too high. If your co-borrower has a steady income (and that he/she has a lower debt-to-income ratio), it will help you qualify.

Similarly, you and your co-borrower could add your assets such as cash deposits, stocks and bonds to qualify for a loan with a bigger amount perhaps. Lenders check assets to see if these could support your closing costs, fees, and mortgage payments. There is also a reserve requirement that depends on the type of property you are buying.

To be clear, a co-borrower with a stellar credit will help you qualify and possibly get a lower rate only if you have a fairly good credit record yourself. Lenders will consider the lower of the two credit scores and if your score falls further behind, it won’t help in your application.

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During a Refinance

You can refinance to add a co-borrower to the loan. Just like when applying for a new mortgage, you and your co-borrower go through the verification process anew, income, assets and liabilities and credit history be under review.

Adding a co-borrower to an existing mortgage through a refinance is different from adding him/her to the title deed of your house. Except when he/she is related to you by blood or a spouse, a mortgage co-borrower does not have a security interest in the property although he/she has to pay back the loan with you.

Without a Refinance

You can skip refinancing and add a co-borrower to the mortgage but only to a certain extent. For instance, you add someone to the mortgage to put into writing his/her promise to pay some or all of your mortgage debt.

If your purpose is to add a child, spouse or parent, you are better off adding them to the mortgage deed, as mentioned above. They can be co-owners but not co-borrowers so they won’t have to be held equally responsible for repaying the loan.

Otherwise, you still need to refinance so you can add a co-borrower on top of getting a low rate, taking cash out of your home, shorten or extend your loan term, etc.

Be sure to ask your lender about the implications of getting a co-borrower and the options to remove him/her should there be a falling out as in the case of divorce.

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No Income Verification Loans: Another Name for Stated Income Loans

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No Income Verification Loans- Another Name for Stated Income Loans

With mortgage rates fluctuating, alternative mortgage products are bound to emerge as they once flourished before the housing crisis. No income verification loans or stated income loans have been one of those mortgage products. While not as prevalent as they were then, today’s stated income loans remain an option for those who can’t document their income the traditional way.

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No Income Verification Loans

With stated income loans, borrowers don’t have to go through the process of income verification using standard documentation, primarily pay stubs, tax returns, and Form W-2s.

  1. Not all borrowers are salaried employees receiving paychecks twice a month; some of them work on a commission basis while others run their own businesses or earn from their investment portfolios.
  2. Tax returns do not accurately reflect one’s income. Business owners often deduct some expenses to reduce their taxable income.

What stated income loans entail is less reliance on those documents to verify a borrower’s income. Your employment will have to be verified but lenders will use other forms to prove that your income meets their standards.

For example, they may require a proof of self-employment from a certified public accountant. Lenders may also require two years’ worth of federal tax returns and transcripts to show you’ve been paying taxes.

No Income Verification Loan Requirements

With fewer documents to work on, lenders have to make sure the loan is sound and the borrower able to repay. It wasn’t long ago when stated income loans were called liar loans because some borrowers or their loan officers inflated their income and asset holdings to get larger loans for pricier homes. These risky transactions contributed to the subprime mortgage crisis of 2007.

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Against this backdrop, no income verification loan lenders require that the borrower put up at least 30% equity. Some lenders may require 40% down payment as borrowers of stated income loans are understood to have a high income, albeit hard to document.

Another primary requirement is a stable work history because lenders have to verify your employment, after all. Lenders differ by their definition of a “stable” employment record but it could be no glaring employment gaps and job switching all too often.

Moreover, you must possess a high credit score, impeccable even. People with good credit scores have a dependable payment history.

Lenders may require other documents such as rental history and bank statements.

No income verification loans are clearly not for everyone, they target a specific group of homebuyers who can afford to take out mortgages with bigger down payments and higher standards in terms of credit and assets.

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Shop and Compare Stated Income Loans This 2017

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It’s 2017 and stated income loans remain true to their word of offering limited documentation mortgages. If you’re one of those who earn enough but can’t produce the customary paystubs and Form W-2s, a stated income loan might be for you. Consider this as your introduction to stated income loans, their requirements and qualities.

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Stated Income Loan Requirements

Originating loans with two months’ worth of bank statements can be risky to lenders so to make up for that risk, they come up with other requirements that would still allow the loan to measure up to the regulators’ standards.

Before you do the actual shopping for loans, here’s what stated income loans require to help you qualify.

1. Credit. It’s a common misconception that stated income loans are for those with bad credit. On the contrary, borrowers may need more than the average credit score to qualify for a low doc home loan.

2. Downpayment. An ideal down payment on conventional mortgages is 20%. With stated income loans, the generally acceptable down payment is 40%. A larger down payment is said to deter a loan default.

3. Income. While the traditional process to document income can be dispensed with stated income loans, having a consistent job history is imperative. By consistency, it doesn’t have to be holding the same job for years but a record of having worked in the same industry for a certain period or a slight annual increase in income.

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Stated Income Loans and Qualities

To make a meaningful comparison of stated income loans, consider how low doc loans operate in general.

Type of Mortgage: Stated income loans are historically adjustable-rate mortgages (ARMs). Recently, there have been low doc loans that come with fixed interest rates.

Type of Property: These mortgages finance residential properties, which can be one-to-four unit dwellings, condominium units, etc. It’s however possible to finance an investment property with a stated income loan. Real estate professionals and savvy investors usually use low doc loans to buy homes for rental or income-producing purposes.

Rates and Fees: Rates and fees vary among lenders. For example, one lender offers rates on the 5% level. Compared to the going mortgage rates, stated income loans usually have higher rates because of the lending risk. It’s important to always shop and compare rates.

Repayment: The payback term for low doc loans also varies. Some lenders offer short terms, e.g. nine to 12 months. Others take up to five years to repay the loan.

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Homebuying 101: Preparing the Paperwork

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homebuying-101-preparing-the-paperwork

When you talk about a loan application, you get babbled. Different lenders require all sorts of documents needed to begin the loan process.

While one lender may differ from another in terms of verification documents, it helps to know that there are certain papers that are common to each. Preparing these ahead will not just save you time, but money and effort.

 

Gather these necessary documents before you apply for a loan:

Proofs of Income

Most lenders will require the most recent W-2 form together with your tax statements. However, some may ask for W-2 copies of the most recent two years.

If you are receiving a paycheck from your company, a W-2 will show how much your income is and the portion of it that went to tax. If you have a business and are employed at the same time, expect to provide copies of your 1099. This will report the different incomes you receive in a year other than your salary. More importantly, these verify the  earnings that you have declared upon applying for a loan and reflects your income trends. These figures will then be calculated by lenders to determine if they should approve the loan or not.

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Federal Tax Returns

The recent two years of your tax returns will also be reviewed. You will have to expect to include all the schedules and K-1’s if it applies. This is important for self-employed borrowers who cannot provide W-2s.

In a stated income loan, it may not be required that you provide proof of your income such a tax return. Providing these, though, if you have them, will strongly suggest to a lender that you are ready to have your income and assets be examined. This may likely increase your chances of approval especially if they find out that you have more than enough reserves.

Credit Reports

Most loans require that you submit a copy of your credit report. Even if lenders may perform their own credit checks and each one has its own minimum credit score requirement, it is beneficial to know your credit score in advance.

By doing so, you will be able to detect any areas that need credit repair before your lender scrutinizes it. You may need to pay off some missed payments, get current on your existing loans, or trace up some fraudulent transactions done under your name. These extra steps may mean the difference once your loan provider takes a look at your credit report.

Anyone applying for a stated income loan needs to have stellar credit scores. If you provide one that’s already blemish-free (thank yourself for doing the necessary repairs in advance!), these lenders will likely approve your application.

Bank Statements

Your lender would want to know your reserves. Expect them to ask for a copy of your bank statements; the most recent and, possibly your old ones too.

Prepare copies of savings accounts, retirement accounts and deposit transactions among others. This will not only show how much money you have in the bank. It can also prove that your down payment was not a gift from non-borrowing household members.

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List of Other Assets

Aside from your bank statements, you should prepare a list of your other assets as well.

This will serve as evidence that you have enough savings and investments to keep you afloat after paying for any down payment, monthly premiums and closing costs. QM or stated income loans alike, the more money you have, the better chances that a lender will be willing to lend. If you will be able to provide these documents, you will have proof that you have other sources of income aside from your loan. If you are an investor with a huge asset, this will work to your advantage.

 

Final Words

True, paperwork takes so much time to do and, sometimes, it gets frustrating. It may sound silly, but these records will help not just the lenders but you in many ways. For one, it helps determine if you would be able to afford the loan or otherwise.

QM lenders may require you more documents but it is for sure that the ones listed above will be part of it. In a stated income loan, however, an income verification is not necessary as this loan is what it is known for. You will only have to declare how much your income is and will be taken for your word. Although submitting this document may increase your chances for a loan approval but it is never required. The one most important thing you will have to work on is to make your credit report as excellent as possible. This, together with a large down payment and a huge cash reserve, will have loan providers consider your application.

Shop for lenders and ask each for a rundown of all the documents they need. Take them down and compare them. See which ones are easier to comply and which works for you best. Start shopping for lenders today!

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