There’s this popular notion that loans are a means for most people to afford something. Individually, they lack the financial capacity to pay for a ‘big ticket’ purchase in cash. For instance, a member of the working class doesn’t make millions in a year so he has to get a mortgage to buy that first house. Now, this might have been true in a decade ago. Today, there is a loan product that appeals to the really well-to-do. Introducing stated income loans, a unique way for the rich to expand or maintain wealth.
What Draws Big Earners to Stated Income Loans?
Most loan products out there require the borrower to provide detailed documentation of his/her income sources. A stated income loan is not as exacting. This feature appeals to big earners who either have trouble keeping track of their various income pools or would rather not disclose how much they actually make. The fact that this loan type does not require written verification of income and tax returns gives them a sense of security.
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Apart from having lesser restrictions, the guidelines of a stated income loan are more easily met by those in the upper classes. Without the need for extensive documentation, lenders need another way to reduce a borrower’s risk of default. The solution is to require excellent credit scores, plenty of cash reserves and a down payment that ranges from 35 to 50 percent. The average borrower, still in the process of clearing credit card debt, is not a candidate for this.
Finally, big earners and high profile investors aren’t looking for a 30-year loan term. They want something they can pay off in a short span of time. A tech mogul from Silicon Valley doesn’t want to pay for his new mansion in cash. He could use this particular loan to retain a portion of his own capital and use it for other investments.
Lenders are packaging stated income loans in a variety of ways to better serve the needs of a wealthy clientele. Some companies offer jumbo mortgages for borrowers with a 55 percent DTI. Others allow interest-only payments. These plans are especially attractive to high earners. Normally, they get the bulk of their income from those company bonuses or commissions handed out yearly or every quarter.This arrangement allows borrowers to make larger payments when they have more money. The rest of time they can make do with minimum payments.
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