Stated-Income

Jumbo Loans Get Redefined as Conforming Loan Limits Increase in 2018

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Jumbo loans just got bigger. Beginning 2018, the conforming loan limit on a one-unit home in most parts of the U.S. will increase to $453,100 from $424,100. In high-cost counties, the standard loan limit will also increase to $679,650.

Those borrowing money higher than the standard conforming loan limits belong to the jumbo loan club. Qualifying for jumbo loans is tougher than on traditional loans because of inherent market risks and individual lender standards.

Do you qualify for a jumbo loan? Ask a lender today.

Conforming Loan Limits Boost Jumbo Loans

The Federal Housing Finance Agency who regulates Fannie Mae and Freddie Mac has raised the conforming loan limits to reflect a 6.8% increase of home prices in the U.S. based on the seasonally-adjusted expanded-data House Price Index (HPI).

Consequently, the 2018 conforming loan limit is $453,100 and it can reach $679,650 at most to account for one-unit homes in expensive counties in the U.S.

A list of 2018 conforming loan limits is accessible here.

Fannie Mae and Freddie Mac purchase loans within those loan limits, thereby known as conforming loans. The GSE loan limits also affect other government loan programs.

For example, VA loans match GSE loan limits to calculate the amount of VA guaranty. FHA loan limits in high-cost areas are based on Fannie/Freddie loan limits.

Because jumbo loans fall outside of standards set by the GSEs and relevant government agencies, they are underwritten by individual lenders.

Qualifying for Jumbo Loans

The territory of jumbo loans is vast. These loans for bigger homes for property flippers, investors and more are offered at varying terms and conditions.

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In terms of process, applying for a jumbo loan is no different from the usual standard loan because lenders will still weigh these qualifications:

  • Credit scores on jumbo loans may be higher or at par with conforming loans. There might be some wiggle room for borrowers with less-than-perfect scores but they’ll get higher rates than those with excellent credit.
  • Debt-to-income ratio is ideally 43% and below. But ample cash reserves of at least six to 12 months can possibly make up for an above 43% DTI or a low credit score for that matter.
  • Down payments are usually higher on jumbo loans. They can be at least 10% up to 30% of the purchase price, depending on the lender.

Documenting income is tricky for self-employed borrowers taking out traditional loans. For jumbo loans, lenders might require just one year of tax returns filed with the IRS to document income from a stable or growing business.

To be fair, Fannie Mae has eased its guidelines in documenting self-employment income, requiring only one year of filed tax returns to qualify for a conforming loan.

Rates on jumbo loans are higher than on conforming loans because they carry the risk of not being eligible for purchase by Fannie Mae or Freddie Mac.

If you’re buying a home in a high-cost area, your loan might still be within conforming standards. Ask lenders about this and other loan matters.

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The Role of Bank Statements in Successfully Getting a Mortgage

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Whether you are applying for a stated income or a traditional mortgage, your loan officer could ask for your bank statements. These documents are used to verify and document your income. Lenders are required to do their due diligence on your ability to repay your debt and your bank statements and other asset documentation will prove that.

Because most loans are underwritten via an automated platform, e.g. Desktop Underwriter®, the need for bank statements may crop up during underwriting. Nontraditional loans such as bank statement loans are based off on the flow of money into bank accounts so that they go hand in hand with the loan application.

Find out the role of bank statements in applying for mortgages. Find a lender today.

Bank Statements and the Mortgage Process

When making loans, lenders must ensure that the borrower has the capacity to pay the debt to be incurred. They would look into the income of the borrower to make this determination.

Moreover, lenders need to check if the borrower has enough assets (readily convertible to cash) that can cover the down payment, closing costs, and reserve requirements.

Bank statements can cover both for the lenders in their quest to track the assets and income of the borrower. They are also helpful in verifying the identity of the borrower and the information as it pertains to asset accounts set forth on his/her mortgage application.

Usually, lenders look at deposits that fall outside of the declared income source of the borrower, e.g. an unexplained large deposit used for down payment. Or it could be recurring withdrawals that pertain to an undeclared debt obligation.

Mortgage borrowers like you can present your personal bank statements. If you are self-employed or are a majority owner of a business, both personal and business bank statements may be required.

Bank Statement Loans

These loans perfectly sum up the role of bank statements when applying for mortgages.

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Niche lenders who make these mortgages usually require personal/business bank statements for 12 consecutive months, thus dubbed as 12-month bank statement loans.

These lenders recognize the struggle of self-employed borrowers to have their real income verified because of write-offs on their federal tax returns. Interestingly, some bank statement loans don’t require tax returns and their related tax transcripts.

What’s important for the lenders is a reliable, steady cash flow that they will use to calculate income. To arrive at income, lenders take the average deposits during the given period, net of debits and withdrawals.

They will then take into account recurring monthly expenses to get average monthly income. From the average monthly income and recurring monthly expenses, they can come up with the debt-to-income ratio of the borrower.

Indeed, good credit, liquid reserves, and provable income via bank statements are the main ingredients to a successful bank statement loan.

As with any other loan, expect to meet loan-to-value ratios, down payment requirements and asset reserves as well.

Don’t estimate the power of bank statements especially if you have difficulty getting financing under standard mortgage programs. You can always look at alternative or nontraditional loan products like bank statement loans.

Happy shopping!

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A Quick Guide To Home Buying For Self-employed Individuals

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If there’s one thing every home buyer has to face, it’s the different hurdles that need to be dealt with. But then if you’re self-employed, the struggle is even more stressful.

It’s no secret that buying a house is not a walk in the park. Everyone has to go through a long and winding road of loan applications, processes, and waiting games.

Getting a mortgage is especially harder for them and applying for a loan is only the tip of the iceberg. This is why it’s best to plan ahead and prepare for what you’re about to deal with. And although preparing doesn’t promise a 100% stress-free process, it would definitely take a lot of the burden off.

Improve you credit

If you’re self-employed, you might want your lenders to see that you have a satisfactory credit score. Lenders usually use this as a basis for approval as well as getting the best rates for you.

However, boosting your credit doesn’t happen overnight. To keep your status in check, try to keep your balances low. Continue paying your dues on time. And during your mortgage application process, try not to apply or open other credit lines and add up more debts in the process. This usually doesn’t give a good impression for most lenders.

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Organize your expenses

It’s not illegal to keep both personal and business expenses under the same account but it’s not really a good idea if you want to prove the state of your income.

Other than making a good impression, lenders tend to have an easier job in going through your expenses by keeping separate accounts for business and personal use. This also helps you deal with taxes with lesser frustrations.

Prove your ability to pay

Of course, lenders would like proof that you can carry on a mortgage in the long run. Before they grant a loan, they want to know if you can pay them back. This is why they look into your income, through necessary documents.

In cases where you’re self-employed or running your own business, they would need to verify the existence of your business by asking for proof of your business license, a letter of verification from a Certified Public Accountant or an Enrolled Agent.

Prepare the paperwork needed

Secure the necessary documents your lender might need. These would prove that you can be trusted with a mortgage.

Along with showing your business license and CPA letter, documents like bank statements, tax transcripts, and the like are usually looked into.

Look into different loan options

Try to shop for loans that you think you could qualify. You can check if you can try your luck with a traditional mortgage and see if you can score a loan.

But if you can’t there are alternative loans that cater to unique situations just like self-employed borrowers. Try to research about different non-qualified loans like stated income loans and others. Ultimately, be careful when you choose a mortgage. Weigh in your options carefully before you jump to a decision.

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Are There Lenders Offering Stated Income Construction Loans?

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Are There Lenders Offering Stated Income Construction Loans?

Finding a construction loan while self-employed can be a bit more difficult than when you have a stable job with a stable monthly salary. When you are just starting up in business, it can even be harder since you will have less income history to show to your lender. Still, finding a construction loan to fund your home building needs while in such a situation is not unheard of. Stated income construction loans offer such financing programs with a different set of qualification standards. Let’s look into this option.

Who is eligible?

Stated income loans, in general, are designed to cater to the financing needs of individuals who find it hard to get loans from conventional lenders because of complications in their income. These include those who are self-employed, have seasonal jobs, or those who receive commissions.

Differences in income or too many write-offs in your tax returns can be red flags for conventional lenders. Instead, with a stated income loan, alternative documentation is used to verify your income.

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Finding the right lender

Stated income loans are typically offered by local lenders and banking institutions. Stated income lenders lay low after the legislative restriction post-crisis in 2008 but today, many lenders are re-exploring these options to tap into the remaining chunk of borrower market who place demand yet cannot be accommodated because of the said restrictions.

Still, you, as a borrower also need to exercise caution in finding the right people to work with.

Make sure you are in good shape before you apply. The following can help you prepare right for your stated income construction loan application.

  • Raise your credit. See to it that your credit history and record reflect no delinquencies and are at FICO 620 or above
  • Prepare your bank statements from the past two years
  • Prepare a good down payment amount

Before you apply, inquire first. Remember that an inquiry on your credit report can negatively affect your score. Get as much information as you can about the loan offer and do a comparison. Then narrow down your list and choose the best offer that fits your needs.

Although it is indeed hard to find stated income lenders that offer this type of loan, it is not enough reason to just jump at the first one that gives you an offer. Consider reputation and track record. Find a lender who will also protect your interest and not just their business.

Find the best in the business. Get matched with a lender today!

Is Now the Time for Stated Income Loans?

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Is Now the Time for Stated Income Loans?

The higher mortgage rates, coupled with a tighter lending environment courtesy of Dodd-Frank, seem to act as a backdrop for stated income loans to stage a full comeback. Consumers may have been hoping for more variety in mortgages with less stringent guidelines. Liar loans, low doc loans, however they were called back then, stated income loans have quietly returned and served that purpose for a niche group of borrowers.

What’s in a stated income loan for you?»

Less Risky Stated Income Loans

Pre-mortgage crisis stated income loans lived up to their name. Borrowers state (overstate) their income and lenders skip the verification part. Nowadays, the lender has to verify the employment and assets of a stated income borrower.

One lender, for example, will review the pay stubs and tax returns for salaried employees and business and personal tax returns for the self-employed. Similar to stated income loans, bank statement loans usually require a year’s worth of bank account transactions to see if the borrower is generating positive cash flows.

These measures serve to lessen risky lending practices. For the lenders, they have to make legal representations about the loan and could face a lawsuit if they have not done the appropriate due diligence.

Lenders also have more advanced automated systems to help them underwrite loans, checking if the loan application makes sense and complies with existing regulations.

A Return to ARMs?

The problem of the past stated income loans was their features that only added risks to an overstated income. Most of them had variable rates, which would be difficult to grasp with their caps, limits, margin, etc.

Some stated income loans were option ARMs under which the borrower can pick how he/she will pay back the loan in interest-only payments, minimum payments, 30- or 40-year amortizing payments, or 15-year amortizing payments.

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The first four options called for really low monthly payments so less equity was built into the loan at the onset. Some of these loans didn’t even have down payments. This negative equity and falling home prices led to widespread foreclosures.

Stated income loans nowadays are still offered in variable rates but they also come in fixed rates. Fixed-rate mortgages offer stability and are easier to manage.

Interestingly, the current state of mortgage rates has made ARMs appealing because they offer lower rates than FRMs. They start with fixed rates until they adjust once a year. They’ve been an option for those who plan to move out or sell the home once the fixed rate period is over.

Stated Income Loans Serve a Niche

The Dodd-Frank Act ensures that the subprime mortgage crisis won’t happen again. But it has made access to mortgage credit even tighter for those who have trouble verifying their true income. These same people often apply for bigger loans.

Thus, the self-employed and the affluent turn to stated income loans as a specialized loan product for them. Alternative documents may be presented for employment verification; but higher down payments, better credit scores, and lower DTI ratios are required for stated income loans.

Speak with a lender today!»

Who Qualifies for Stated Income Loans?

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Who Qualifies for Stated Income Loans?Stated income loans might seem hard to come by today, but that is only because their name has changed. Rather than stated income mortgage, they are now oftentimes called alternative documentation loans or even bank statement loans. These loans are typically reserved for self-employed borrowers that cannot fully document their income, but they can also be used for borrowers that work on commission, bonus, or those that cannot fully document their income in the standard way. The difference today with stated income loans versus how they were 10 years ago is that borrowers still have to verify their income in some way – the option to have a “no doc” or “no verification” loan is a thing of the past. Lenders can no longer take your word for what you make based on your excellent credit score alone; they need proof.

What Type of Work can you Do?

There are no guidelines determining what type of employees can qualify for stated income loans. In general, however, people in the following professions use this program:

  • Self-employed borrowers that do not draw a salary
  • Employees of a company who work on 100% commission
  • Employees of a company who work on a small salary and a majority commission
  • Employees that work overtime and/or on a bonus structure

Honestly, you can do just about anything as long as you work and can prove it. If you do not have standard paystubs to show your regular income or your income fluctuates quite a bit, bank statement or stated income loans are a great option.

Click here to look for stated income lenders»

How do you Qualify?

That being said, just being self-employed or working on commission is not enough to qualify you for the loan; you have to meet certain other requirements. Because this is not a regulated program, such as FHA or even conventional loans, every lender has their own requirements. Across the board, stated income loans do not meet the Qualified Mortgage guidelines because one of the requirements of QM is that income is fully documented. Since you are not fully documenting your income with this program, you instantly fall out of the QM realm. This means the lender can make up their own guidelines as long as the loan meets the Ability to Repay Rules.

The Ability to Repay Rules state that the lender did its due diligence in determining that you could afford the loan, no matter how your income was verified. If the lender uses bank statements, they need to use an adequate number of bank statements to determine an average income, given the rise and fall of your income throughout the year, to ensure that the new mortgage payment will not put you in jeopardy at different parts of the year. As long as the Ability to Repay Rules are met, the loan can close – it just cannot be sold to  or Freddie Mac; most lenders keep these loans on their own books.

Typically, lenders look for a variety of compensating factors to ensure that you are a good risk. These factors include:

  • Great credit scores – A score above 700 is usually desired, but every lender will differ in what they allow. The higher your credit score, the greater your likelihood of getting approved.
  • Large down payment – The average down payment required is 30% of the sales price of the home, but every lender differs. In any case, the more money you put down on the home, the greater your chance of getting approved.
  • Reserves on hand – Most lenders like to see at least 12 months’ worth of reserves in a liquid account to use in the event that your income were to become unavailable, enabling you to still make your mortgage payments.
  • Low debt ratio – The lower your debt ratio, the more likely you are to get approved for the program. There are no exact maximum debt ratios across the board; every lender has their own threshold for what they will accept.

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Look at your Options

If you are a self-employed borrower that has tax returns that show an income, consider talking to a lender about a fully documented loan. You will not know the amount of qualifying income they will use until they evaluate your income. Some lenders add certain expenses back into your net income reported on your tax returns, making your qualifying income higher than you anticipated. The most common expenses to add back are depreciation and depletion. Some lenders will also add large expenses that are considered a one-time expense, if you can prove that they do not reoccur.

If you cannot qualify for a fully documented loan, shop around with banks that offer stated income loans. If you shopped with 3 different banks, chances are you would find 3 different programs available to you. Some lenders have a minimum down payment requirement that is higher than others, while other banks have a lower threshold for high debt ratios. Whatever the case may be, you need to shop around and compare the different programs you are eligible to receive. In addition, every lender will have a different interest rate that they offer – some will be higher than others, so know what you are getting yourself into.

When you compare the loans, do not just compare interest rates, though; make sure you compare the fees charged as well. You can determine which is better, taking higher fees or taking a higher interest rate after you determine how long you plan to stay in the home. If you take the higher fees, you can determine how long it would take you to break even on those fees with the money you would save on the lower interest rate to determine if they are worth paying or not. In the end, you can always refinance down the road, once your income is more stable and you are able to fully document it, if the interest rate you are given is too high to handle for the term of the loan.

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