Stated income loans are sometimes called low documentation loans or even no documentation loans because they require loan applicants to produce less than the usual voluminous mortgage paperwork. A good thing for borrowers yet a red flag for those worrying about another mortgage crisis. Is it really that bad to go for a loan requiring fewer documents? Is less more?
Low Documentation Saves Time Every Time
A document less is a huge relief if you think of the time and effort spent in compiling and collecting documents for your mortgage application file. The documents that you’ll need for low doc loans would depend on your personal circumstances and your lender.
Applying for a stated income loan usually entails the following documents: the Uniform Residential Loan Application (URLA), appraisal, credit report, rental history, tax returns or W-2 forms, CPA letter, flood insurance, homeowner’s insurance, title recording documents, and bank statements.
But Substantiate Your Income
In an era where the ability-to-repay and other standards rule, declaring your income as such means having the necessary proof to back your claim up. In fact, documentation requirements that prevented all income and assets to be verified make one reason why loans become non-QM. If you fail to meet the income requirements of the lender, you might not be approved for the loan.
If you are a salaried employee, pay stubs and Form W-2s are generally required. If your income is made up of commissions or bonuses, ready your income tax returns covering two tax years. Lenders may still require tax returns to see if the information on the pay stubs and W-2s match. They could also request for tax transcripts for income verification purposes.
Bank statements are an alternative way to gauge your financial capability. Looking at your bank accounts, lenders see your spending or saving patterns; they’d likely want to see you have enough in reserves to support your mortgage payments.
Even if you apply for a low doc loan, expect requests for additional documents from your loan officer as he/she verifies your financial information. What low documentation loans afford you is the flexibility to provide other forms to show that you the means to repay your mortgage. Ask your lender about it.»