Stated Income Loan vs. Full Documentation Loans
Stated Income Loan
The emergence of a higher number of self-employed workers has given rise to the return of the stated income loan. 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 freelancers and small-business owners to pursue homeownership despite having an income source that is either difficult to track or high in capital gains.
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.
Full Documentation 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.
The process for a full documentation loan normally involved providing state and federal income tax documentation for the most recent two years. In addition, the applicant must provide proof of any and all assets in his or her possession. Also, the amount of debt the borrower holds will have to be included in the loan process. This can include credit cards, furniture, car payments etc. Lastly, the lender will usually ask to provide documentation about the desired purchase. This includes documentation stating the current market value of the property.
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 borrowers looking to finance their mortgage, contact our specialists at HML Investments today for information on which loan type is right for you.