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.
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.