Stated Income Loan Products
The emergence of a higher number of self-employed workers has given rise to the return of the stated income loan products. These borrowers, unable to provide documentation such as tax returns and pay stubs, find it difficult to satisfy the income verification requirements involved in the standard process for acquiring a mortgage. Stated-income loans allow the self employed and small-business owners to pursue homeownership despite having an income source that is either difficult to track or high in capital gains. The borrower simply stated what their income is on the loan application and the lender does not verify this information. The lender will however verify the source of income (employment history) in order to determine whether or not the income amounts are reasonable.
When choosing to pursue a stated-income loan, the borrower must be willing to accept a higher interest rate due to the added risk and uncertainty the lender is exposed to. For this reason, interest rates on Income-Stated Loans are generally .25% – .50% higher than a full documentation loan. In addition, the borrower must also be able to put down a larger down payment or hold a higher credit score when seeking to acquire a mortgage loan.
In the United States, a full documentation loan is one where all assets, employment, and income are documented and verified. Commonly referred to as a “full doc” loan in the mortgage industry, these loans are one of the most common types of loans in the United States and are considered to be the safest loans for lenders. Because of the laundry list of requirements and documentation required for acquiring a “full doc” mortgage loan, the lower level of risk is reflected by a lower interest rate.
Full documentation loans require a lengthy and very detailed approach to qualifying borrowers. This extensive process reaps lower interest rates relative to those less documented loans such as income-stated loans. When seeking a mortgage loan, the borrower should consider the required documentation involved in the type of loan and compare that to the desired interest rate of the loan.
For more information regarding stated income loan products, contact the specialists at HML Investments today.