It’s easy to see why a stated income loan appeals to someone who is self-employed. A lender offering this won’t be after your W-2 statements or paystubs. He’ll look at the income on your application form without question. Well, most of the time anyway.
In the real world, a stated income loan is not as straightforward as most people make it out to be. If this is an option you’ve been considering, best orient yourself with a few facts.
1. A stated income loan has different versions.
The term ‘stated income’ is often used in the most general terms, like the ‘no doc’ loan. However, this financial product can be packaged differently, depending on the borrower’s circumstances. A lender may offer two different proposals to individuals who technically qualify for a stated income loan.
2. Lenders may not always take your word for it.
Your lender may accept the income you’ve written down on the form, but this doesn’t guarantee that you’ll get the loan. Your application may be subject for review so you still need to be ready with documents that show just how much you make.
3. It could cost you more.
Banks and private lenders offering stated income loan programs often deal with borrowers who have substantial credit and significant equity on their current home. Even so, the lender is still at risk because such applications do not require full documentation. Financial institutions will pass on that risk to the borrower, in the form of a higher interest rate.
4. A stated income loan saves you time. But do you really need to save such time?
Borrowers benefit from a shorter processing time with this loan because verification is (mostly) eliminated. Still, you should consider if this will be helpful to you at all. Neither you nor the buyer is likely to want the settlement concluded next week since you’ll both need time to prepare for the move.