When some people hear about the stated income loan, they immediately cringe. To them, it is simply a ‘liar’s loan’. In truth, there is nothing to fear about it. A stated income loan is a safe loan. If we have a good grasp of what this loan is, who it is intended for and how it works, we may even appreciate it more.
h2>They are Safe Loans
People often generalize that stated income loans allow scrupulous borrowers to fudge the numbers just to qualify for a mortgage. The truth is there are different types of stated income loans, each has its own documentation type.
SIVA Loan
This stands for Stated Income/Verified Asset Loan. What this means is that a borrower just declares the gross monthly income on the loan application without needing lender verification. However, your assets will be verified. Thus, there will be a need to provide copies of your bank statements or any other documents showing your assets.
In a SIVA loan, the debt-to-income ratio will be evaluated by providing the income figures. This will become the basis for the DTI ratio.
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SISA Loan
This stands for Stated Income/Stated Asset Loan. Basically, a borrower will just state both the monthly income and the assets. The lender won’t ask for any documentation to verify the formation provided. Like a SIVA loan, the debt-to-income ratio will still be generated based on the stated gross monthly income.
Why is it important to generate and establish the debt-to-income ratio? Simply because this is how the lender determines if you have the ability to repay the borrowed money.
The DTI ratio shows how much debt you have compared to your income. If you have a high DTI ratio, this may mean that you are a high-risk borrower.
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h2>Income is not the sole proof that you can afford a mortgage.
Qualified mortgage loans have strict guidelines and documentation. Failure to provide the necessary income verification will prompt the lender to deny you of a mortgage. However, there are those people who simply cannot provide these papers because they do not have them. This does not immediately mean that they cannot afford to pay the loan back.
Assets can be enough proof. Assets can be reflected on bank statements which show exactly how much money rolls into the account and how much goes out. This will provide the lender a good estimation of the borrower’s cash flow and reserves.
An excellent credit score is sometimes more important than income. Some people may have a high income, but they are buried in debt. This will be reflected on their credit score. If you keep a stellar score, this will indicate that you deal with your debts efficiently. There is also a good chance that you will be paying your monthly mortgage diligently to keep your credit clean.
A stated income home loan provides you the freedom that you cannot get from QMs. It presents homeownership opportunities to people who cannot get conventional financing. The key is to understand its nature and not abuse its leniency.
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