Stated loans start as a risky loan where the borrower is only required to present a stated income without documentation or verification. However, these loans have a long way since then, and borrowers are required to prove their ability to repay. For borrowers to access stated loans, lenders document your ability to pay back the loan and provide relevant documentation as well.
Unlike other mortgage loans, stated income loans do not require income or tax return documentation for all self-employed employment. Stated loans are customized to cater to those employed and those who work for themselves.
Employed borrowers must provide all the necessary documentation for conventional loans, such as W2 forms and updated pay stubs. These requirements are stricter for self-employed applicants because their income is not constant and is subject to change. Stated income loans, on the other hand, require very little from borrowers. Lenders focus on credit score, the number of reserves, and a significant down payment.
Who Does Stated Income Loans?
Due to their lenient policy, in the beginning, stated income loans
created room for the 2008 amendment on the verification requirements. This led to the exemption of stated loans from most banks which offered the loans. Instead, many lenders nowadays offer modern versions of stated loans, including asset depletion loans, bank statement loans, and investor loans. These are some of the loan programs that do not require tax returns.
The reason why lenders are refraining from offering stated income loans is that they pose a high risk. Since borrowers are not required to provide income verification, most lenders are afraid of experiencing a repeat of the 2008 housing downturn. As a result, stated loans are no longer available, but alternatives have different benefits and rates.
What is the Lowest Rate for Stated Income Loans?
Most lenders who still offer stated income loans are considered carefree when it comes to qualifying applicants. Applicants must have any cash reserves, a good credit score, and a sizable down payment. Unlike other conventional mortgages, stated income loans are based on the equity of the property. This means that your ability to access an indicated income loan depends on the amount of money the borrower is willing to put down.
Various lenders offer different rates for stated income loans. However, borrowers are expected to put down a payment of up to 30%. This is slightly higher than the rates for conventional mortgage loans, which require at least 20% for a down payment. Since a stated income loan lender will use the amount you intend to put down before qualifying for this loan program, many borrowers end up putting down 35% to 50%. These loans are also associated with a higher loan-to-value ratio (LVT) of 70%.
Although the applicants have their employment verified, lenders are more focused on monthly gross income. Therefore, asset documentation and bank statements are essential, as they offer lenders the security needed to determine that you can indeed make payments. If you intend to get a stated income loan, be prepared for higher interest rates which vary from one lender to another.