Many people are self-employed, such as a contractor who receives payments reflected on a 1099, someone who works part-time or other situations where the home-buyer’s financial situation affords the ability to buy a home, but their income tax filings may be behind schedule, or perhaps traditional methods may simply not be the best way to prove ability to repay a mortgage loan. Not everyone works a typical job, and not everybody has a typical weekly paycheck. Some people have good financial situations, but prefer not to show all of the traditional proof of income etc. For these situations, a stated income loan may be the ideal solution.
Some wonder if home buyers can still get stated income loans in 2022. The answer is maybe for many people who have good finances, have good credit, and would like to complete a real estate transaction with good loan to value. In these cases, stated income financing is often the key to a home purchase or other successful transaction.
BANK STATEMENT LOANS
Stated income loans have evolved over recent years. Traditional no-doc mortgage home loans went away post-2008, in favor of strict income verification rules. But not everyone has the income documentation needed for a conventional mortgage. Some people need an alternative way to show that they can afford to buy a home loan. Fortunately, there are new ways of doing stated income loans. Options include: bank statement loans, asset depletion loans, real estate investor loans and commercial property loans. These can help many prospective home buyers to get a mortgage, even without the usual tax returns.
Some lenders offer these semi-stated income loans, though rates tend to be significantly higher. Find a few of them and compare rates to get the best deal on your mortgage.
Very popular in the early 2000s, stated income loans were one of the factors blamed for the housing market collapse. This is because some lenders were approving borrowers based on the income stated on their loan application but did not require income documentation to verify whether or not it was accurate. This resulted in too many borrowers defaulting on loans.
Upon enacting the Frank-Dodd Act of 2010, those types of stated income loans for owner-occupied properties became unlawful. Lenders must now fully document a borrower’s ability to repay the loan — either with income or assets. Stated income loans can still be done for real estate investors, because they aren’t buying a home for for themselves to live in. That leaves some borrowers at a disadvantage, however, especially self-employed borrowers. But, the good news is that are some loans, including a bank statement loan, seller carry or alternative income verification loans, which can meet the needs these borrowers.
Stated income loans for self-employed borrowers
For bank statement loans, lenders use bank statements (typically two years) to confirm a borrower’s income. Thus, tax returns are unnecessary, and recent pay stubs are also not usually needed. Different lenders have different underwriting requirements under which they determine net income. Buyers who don’t qualify with one lender, may still qualify with another.
Bank statement loans are offered through non-QM lenders (also known as non-qualifying mortgage lenders). The loan can’t be sold to Freddie Mac or Fannie Mac. Not all lenders offer non-QM loans, so shop around!
How to Comparison Shop for a Stated Income Mortgage
Qualifying for a bank statement loan
In addition to determining net income, lenders also look at the following when determining loan qualification:
Two-year timeframe. Most lenders require self-employed borrowers to have 2+ years of consistent income. Debt-to-income-ratio determines the maximum loan amount. Some lenders may go as high as 55% (traditional mortgages are usually between 36% to 45%), though the actual ratio varies by lender. Larger down payment may be required. A borrower with great credit may still be required to put 10% down (conventional mortgages allow for 3% down), but some lenders may ask for a higher down payment. A higher credit score is sometimes required for bank statement loans, usually 680 or higher. Those who qualify with a lower score will likely be charged a higher interest rate. Because stated income loans are considered riskier, expect interest rates to be 1% or more higher than for traditional mortgages.
While stated income loans may be hard to find for owner-occupied properties, they’re readily available for borrowers looking to purchase an investment property. This is a big help for borrowers suck as real estate investors, house flippers, prospective landlords and self-employed borrowers who are looking to purchase a non-occupant property, and to qualify for a loan without fully documenting their income through tax returns.
Other options for home buyers include seller financing, private party notes, business partners and other solutions that are private, or that properly address the needs of the borrower. Some lenders have just rolled out new investor DSCR programs that go up to 90% loan to value. Investors are now able purchase an investment property without needing to show any income, with only 10% downpayment. Please reach out if you would like to get prequalified.
Get a free report on stated income loans, along with list of lenders, private money resources and seller financing options. Fill out the online form:
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Copyright © This free information provided courtesy L.A. Loft Blog with information provided by Corey Chambers, Realty Source Inc, DRE 01889449. We are not associated with the seller, homeowner’s association or developer. For more information, contact 213-880-9910 or visit LALoftBlog.com Licensed in California. All information provided is deemed reliable but is not guaranteed and should be independently verified. Properties subject to prior sale or rental. This is not a solicitation if buyer or seller is already under contract with another broker.