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.
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.
- 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.
- 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.
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.