Many of us are a lot more familiar with conventional and government-backed loans than stated income loans. Some of us may not know much about it except that it is considered a non-conforming mortgage.
For sure, you’ve come across this term while shopping around for mortgage loan options. Most of us are guilty of shrugging off stated income loans before we even take a little more effort in knowing about it.
But before you make a decision, it is important that we have adequate information about this mortgage loan. Knowing its benefits and drawbacks will help borrowers understand and decide whether or not this loan is right for your situation
Here are the five loan facts you should know about stated income loans:
Each Application is different
In a stated income loan, each applicant submits a “unique” application. No two applications are alike. The mortgage lender will base their underwriting largely on the income you declare and the other documents you can provide.
A stated-income loan can cover many different loan types and underwriting process. However, it is still wise to prepare for the application as shop for different lenders to find a stated income loan with requirements that fits your current situation.
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It has many types
A stated income loan has different types. Each has its own documentation process.
A Stated Income/Verified Asset Loan (SIVA) allows the borrower to declare the gross monthly income. No verification is done to check the veracity of this declared income. However, the lender will verify the homebuyer’s assets. To do this, the borrower will have to provide copies of banks statements and other necessary documents that show these assets.
Another type of stated income loans is the Stated Income/Stated Asset (SISA) Here, the borrower declares both his/her income and assets. These won’t be verified by the lender or the underwriter. However, an estimated debt-to-income ratio will be determined using the income stated on the application.
The Process is Streamlined
This is one of the most obvious advantages of a stated income loan. Because the lender doesn’t require an applicant to submit tons of documents for verification, the loan process is cut short.
If there’s one thing stated income loan can guarantee, this that the application can be quick. This saves you a lot of time. This can be beneficial if you’re in for some steep competition with other homebuyers for the same property.
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Today’s Stated Income Loans are Much Safer
The stated income loan of the yesteryears was seen as risky loans because you can get financing without any verification for creditworthiness.
Now, some stated income loan will require some sort of verification. A lender will need to ask you of your tax records or any other papers which shows that you can handle a huge financial responsibility. It will allow lenders to check for any mishandled debts in the past.
They may Costs More than Conventional Loans
Stated income loan falls under the non-QM category. While not all non-QMs are risky loans, it is considered inherent because it doesn’t conform to the QM lending standards. For this reason, stated income loans may have a higher interest rate and a larger down payment than QM loans. They may be more expensive than conforming loans. These compensate for not being able to verify the borrower’s income.
The housing crisis of 2007 made stated income loans a thing of the past. They were single handedly accused of being the reason for the crisis and were therefore removed from the market. Since then, however, these loans have made a slow comeback for a small portion of the community. Not everyone will qualify for this niche home loan product because of its strict requirements thanks to the new Dodd Frank regulations that all banks must ensure that a borrower can effectively afford a mortgage, but many people still qualify. One of the most important aspects of a borrower for this type of loan is the credit score. Plain and simple – bad credit will get you nowhere.