A stated-income loan qualifies a borrower using the income the borrower states on the application form - as opposed to the income the borrower can document. With a stated income loan, the lender agrees not to attempt to verify the income the borrower has stated on the application.
Stated income mortgages are ideal for the self-employed and for home buyers in professions with salaries comprised mostly of cash tips, such as waiters and hotel porters. This type of loan applicants can often afford a mortgage, but don't have the necessary pay stubs to document their true earnings. Self-employed business owners whose personal assets are comingled with the business assets often utilize "Stated-Income Stated-Assets" mortgage programs.
You are responsible for providing an accurate figure when the loan officer ask's for your income amount. The loan officer should not coach you or fill in the amount for you. If the loan is audited and fraud is discovered you and or the loan officer can be held accountable uner the law.
With the use of automated underwriting borrowers with exceptional credit that meet other loan criteria can get a stated income loan or no income verification loan with the same interest rates and fees as borrowers who do provide income verification.
For some people a no ratio loan or a no doc loan may be the best route to go (instead of stated income). On a no ratio loan an income figure is not filled in on the loan application and no debt ratio is calculated. On a no doc loan, there is no employement filled in, no income listed and no debt ratio is calculated. These types of loans are higher risk loans and higher rates are usually associated with them. However, some people may have income that an underwriter will not accept for one reason or another and these options may be the better route to go. Temporary disablitly is usually an income that can not be used. Also a person who jumps around from job to job, has large gaps in between jobs, switches their line of work constantly and has no job stability may consider one of these types of loans.
Employment will most likely be verified, the income stated will have to be make sense with the type of job submitted on the application.
One of the reasons for a stated income loan is to minimize paperwork during the loan application process. A number of requirements that would normally be requested are W2 Statements, 1099 Forms, Bank Statements, and Pay Check Stubs. A stated income loan would not require the borrower(s) to find and organize this information to be approved for a loan. In many cases the interest rate difference is very minimal but normally slightly higher than a loan which requires proof of income.
On some stated income programs, the lender may require the borrowers to complete and sign Internal Revenue Service form 4506. This form gives the lender permission to access past and future tax returns of the borrowers. Having a signed and completed 4506 form in the file greatly enhances the marketability of the loan to the secondary market.
Some times this loan program has been referred to as "The Liars Loan". It is important to understand, the existance of this loan, is for the purpose of helping borrowers, who otherwise cannot document their Actual Income. It is not designed to ficticiously inflate your income.
Though the stated income loan is an attractive loan for many self employed borrowers, always remember that many of the deductions that you take on your business taxes can actually be factored right back into your income for mortgage underwriting purposes.
Stated income may be used in lieu of full documentation if you have higher credit scores. Lenders view you as less risky and therefore are willing to dismiss income documentation to speed up the loan process. The rate you receive is contingent on specific loan to value and/or down payment restrictions.
Lenders will often check with widely-availalbe salary survey sources like salary.com to determine whether or not the income stated is consistent with the borrower's profession and title.
