Risks of Lying on a Stated Income Loan Application

A stated income loan application, which is sometimes called a liar's loan, entices borrowers to lie about their income. It does not require any proof of income, such as paystubs or bank statements, and therefore it would be very easy to exaggerate your earnings. Although falsely overstating your income may allow you to access larger amounts of money, lying on a stated income loan application has its risks.


If you are suspected of overstating your income, you will most likely be denied a loan. Lenders will call your employer to verify that you actually work at a specific company or in a specific field. If you are self employed, lenders will require a letter of verification from your attorney. Then, based on the work that you do and the field that you work in, the lender will decide whether or not the income that you claimed to earn is believable.

If you are approved for the loan, you will sign a document that gives the lender the right to review your past two income tax returns. Although the lender probably will not carry this review out, if he/she does decide to review your returns and finds a discrepency between the tax returns and the statements that you made about your income, you will be held accountable. Accountability could come in the form of you having to immediately repay the full value of the loan, which you most likely will not be able to do.   

One lie that is considered acceptable is if a borrower lies about where the income is coming from. If the borrower really does have the money, then making up a source might be looked at as unproblematic. All that the lender cares about is that you can make your payments.      

The biggest risk that you face if you lie on a stated income loan application has nothing to do with getting caught. Stated income loans have higher interest rates because they pose higher risks to the lender. If you lie about your income, you probably will not be able to afford the monthly payments on the loan. Instead of benefiting yourself by falsely securing a higher loan, you are actually harming yourself by putting yourself in the position to inevitably default. You will have to declare bankruptcy or suffer foreclosure. Once you default on your home loan, securing a home loan in the future will be harder to do.