Stated-Income

A Liar’s Loan is Not Something to be Scared Of

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The term liar’s loan came about when some borrowers came up with falsified information when they were applying for a loan. But even some lenders were untruthful when offering the loan to borrowers. Back then, some loan products opened doors for unethical practices for borrowers and lenders. However, the nature of these loans remain true; to help those who cannot qualify for conventional loans get an alternative financing. Sad to say, some people abused this opportunity and exploited it too much.

No-documentation loans and low-documentation mortgage loans are basically that. Borrowers may qualify for a mortgage loan without having to submit all the standard documents a conventional loan requires. A stated income loan is a good example of this loan type. The borrower simply states his/her income and the lender will take the person’s word for it.

Call it a liar’s loan, but you don’t have to lie to get financing.

The convenience and leniency these loan products offer made it easy for unscrupulous people to abuse. this became rampant until the term “liar’s loan” was coined for such loans. Nonetheless, a no-doc or low-doc loan as created more opportunities for certain people.

Individuals who cannot produce income and asset verifying documents turn to stated-income loans to find financing. These borrowers may have non-traditional incomes sources or have a personal business or are self-employed. Even so, this does not necessarily mean they do not have the money to afford the monthly payments.

Qualifying for a stated income loan is pretty straight forward. The lender will allow you to state your monthly gross income and your assets. The lender, may it be a bank or a private lending company, will not ask you to verify this information by asking you for documents.

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What is verified?

Not having your income verified doesn’t necessarily mean nothing else will be. If you have a job or you work for somebody, the lender may contact your employer to verify your employment. If you are self-employed your lender may verify this by asking you to submit a CPA letter.

Loans like these will care a much higher interest rate than a full documentation loan. It may also ask you to put a larger down payment or will require a higher credit score. This is done to lower the level of risk the borrower has. For lenders, not being able to verify your income poses a great uncertainty on their part.

Per contra, if your situation has made it impossible for you get other loans, a stated income loan may help. You can start shopping for lenders. Knowing the loan offers from different lenders will give you more options to choose from.

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Tax Hurdles and Alternative Documentation for the Self-Employed

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‘Self-employed’ is a term generally associated with anyone who doesn’t hold down an office job with regular hours. In this sense, it includes home-based employees and freelancers. To avoid confusion and to serve the purpose of this article, let’s identify the self-employed individual as someone who owns and runs their own business, in whatever that might be.

Perks of the self-employed

There are definite perks to running your own business. Whether you sell products or offer a particular service, you are your own boss. You work on your own time and are in control of every aspect of your enterprise. You can design operational processes and decide who to hire.

Profit? You get all of it of course. You are your own employer so you reap financial benefits from the money that the business makes.

Tax hurdles and such

Being self-employed may prove advantageous in most areas. However, this isn’t usually the case when it comes to financing a home purchase. Income verification is an essential step in the underwriting process. The lender seeks to find out if you have the financial ability to repay the loan based on the supporting paperwork. A tax form is a document that gives the underwriter an insight as to what your income is really like.

Submitting tax forms can be tricky when you’re self-employed. Normally, taxpayers have a tendency to maximize their deductions. This strategy doesn’t work well for business owners or freelancers because more deductions mean less income. And less income may reduce your chance of being approved to borrow a specific amount of money.

Ace that loan application with tips from reputable lenders.

What options are there?

There are a number of ways to get around the dilemma above.

  1. Leave some deductions on the table

To better your chances for a home loan, leave some of those business-related expenses on the table. Not declaring each and every bit of cost incurred in running your business keeps the income stated on your tax form within a reasonable amount. Find information for filing taxes as a self-employed individual here.

  1. Look into home loans requiring alternative documentation

Barely verified mortgage applications are a thing of the past. But some lenders are offering alternative products to the self-employed borrower. Collectively, they are known as non-qualified loans. Unlike traditional loans, these financial products are more flexible when it comes to paperwork. In some cases, little to no down payment is required.

One product in particular, the stated income loan, allows you to put down your income on the application form but doesn’t necessarily request tax forms and paystubs.

Browse through this website to learn more about stated income loans. Or talk to one of our lenders.