Stated Income Loan Qualifcations and Requirements

A stated income loan is a mortgage that was popular in recent years. However, recent legislation has restricted most stated income loans. The idea behind a stated income loan is that the applicant will state their income and be exempt from verification processes.

Why a Stated Income Loan?

Stated income loans are popular for those that have trouble verifying the amount of money they make. Self-employed borrowers are great candidates for stated income loans because they know how much money they make, but cannot typically provide evidence.

Traditional mortgages carry strict guidelines, with respect to income calculations, verification and debt-to-income ratios. The stated income loan has offers flexible lending guidelines. For example, traditional loans offer debt to income ratios of 36%, but the stated income loan typically allows 55% ratio. In this way, a borrower is able to qualify for a higher payment.

 What Lenders Look At

A key factor of eligibility is your FICO score. Your credit score will tell a lender everything they need to know about your payment ability. If your score is low, you rarely pay your bills, and you've had several accounts in collection, it does not matter what you say your income is. Lenders want to see a reputable, sustained credit history with a good track record. If you cannot display this, you most likely will fail to qualify for this type of loan product. 

Another important qualification tool of the stated income loan is the borrower’s assets. A lender will review a borrowers savings history and determine if the income that was stated is likely, based on the deposits.

Public Scrutiny

Recent legislation acts have attempted to regulate stated income loans. A study presented by lawmakers showed that over half of the people with stated income loans exaggerated their income drastically. This means that the integrity of the loans is being compromised, which will hurt the lending industry as a whole.

Currently, stated income loans have been phased out of existence with most banks. The idea behind the loan works well for the self-employed borrower, however, those that abused the system may end up ruining it for everyone.