When and How to Get a Stated Income Second Mortgage
It is rare to secure a stated income second mortgage, but it is possible if you have a high level of equity in your first home. Stated income loans, which do not require proof of income, went out of fashion after the credit crisis of 2007 to 2008. Today, most lenders require actual proof of income. However, lenders may be willing to waive this requirement depending on your circumstances. Keep in mind that stated income loans are highly risky, so they should be pursued only within reason.
How to Get a Stated Income Second Mortgage
Start by approaching your primary mortgage lender. This lender already has your financial information on file, knows your ability to pay your current debt and holds the deed to your current property; therefore, this lender will be in a good position to approve your loan without paperwork. That said, this lender has the most at risk if you cannot afford your second mortgage. If this lender will not approve your loan, you must contact other lenders to determine if you will qualify. Without proof of income, the lenders will require you have very high credit and a large asset base and that you are a low "flight" risk, meaning that you are very tied to your current physical situation.
When to Avoid a Stated Income Second Mortgage
If you have the income to justify a second mortgage and are in no rush, you should avoid a stated income loan. You will find better rates and financing costs by simply going through the process of proving your income. If you prove your income, the lender can better evaluate your ability to pay, meaning your loan size will reflect what you can afford. You will further benefit from knowing the lender holds best practices in lending. In this case, you can be more certain your limits and rates are appropriate.
When to Take a Stated Income Second Mortgage
Because these loans are hard to find and costly, it is best to avoid a stated income second mortgage. However, there are a few scenarios in which you could have need for one. First, there is the possibility your income is hard to verify through traditional means. For example, if you work largely on commission, you will not be able to supply a standard salary verification. In this case, you can supply two years' worth of tax returns in most scenarios. However, if you just started a new job, this will not be an option. Similarly, if you just started a new business, you may have a hard time verifying the income of that business. A second reason to take a stated income second mortgage is to rush through the process. If you simply cannot wait for the money, such as in an emergency, you may not have the luxury of shopping around for the best rates. In this case, a second mortgage needs to come through quickly and with as little paperwork as possible. A stated income loan is more likely to come through on this timetable. Be wary of moving too fast, however, as you may sign on for unfavorable financing terms in the future.