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.
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.
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.