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.
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.