Would you rather not use pay stubs or tax returns to verify your income on a mortgage application? With a stated income loan, there’s no need for you to. The way this financing option works is you simply state your monthly income. Even though the lending option was originally intended for self-employed individuals with varied tax schedules, it’s recently risen in popularity with other types of borrowers.
The Inner Mechanics
With a verified asset income loan, the borrower notes her or his total monthly income on the mortgage application and provides asset documents, such as bank statements, as a method of verification. Stated asset loans, on the other hand, are a type of stated income loan in which the borrower adds his assets in addition to a monthly income on the application. Not that you’ll still have a debt-to-income ratio with this type of loan.
While lenders won’t verify your monthly income, they will check to make sure you’re currently employed before offering you a loan. Either your employer will be called, or you’ll be asked to submit a CPA letter as proof of your self-employment. With this in mind, it’s essential that you not overstate your income, not even by a small margin. Your job title will not only determine how much you’ll put for your gross monthly income, but also how believable that income will be to lenders. Something else to bear in mind with stated income loans is you can be asked to complete a Form 4506, which gives the lender the authorization to legally request your tax returns for the last two years.
Because of the risk lenders take with this type of loan, borrowers commonly pay higher interest rates. Compared to a traditional loan, the interest rates for stated loans range 25 to 50 percent higher. Additionally, you might also have to put down a larger down payment before you can be approved for a loan. If you’re unable to do so or feel there’s a strong chance you won’t be able to do so, you might still be approved if you have a good credit score. In any case, save up as much money as possible and take steps to improve your credit score and clean up your report in the months leading up to you applying for a stated income loan.
New types of loans are making it easier for borrowers to secure the financing they need, but that sometimes results in tighter restrictions. Always be aware of your options and the requirements you’ll be expected to fulfill.