Stated Income Mortgage Loans are making a comeback! Why? because it helps self employed borrowers and investors obtain a mortgage loan.
What is a Stated Income Mortgage loan?
Can you still find a Stated Income Mortgage loan today?
Stated Income Mortgage Loans for Self-employed borrowers
Stated Income Mortgage Loans for Real estate investors
Do Stated Income Mortgage loans make sense for you?
What is a stated income Mortgage loan?
Stated income mortgages are home loans where lenders do not verify or document income at all. The lender will not even ask for any income documentation. They are called stated income loans because lenders use the income stated on a loan application to issue a loan.
Can you still find a stated income mortgage loan today?
Yes! There are many lenders that offer stated income loans and the interest rates vary from lender to lender based on every borrowers individual situation.
Lenders take into consideration various aspects of the loan to determine the interest rate and terms of the loan but in general they look at the following criteria.
- Credit Score of the borrower.
- LTV or Loan To Value of the property.
- DTI or debt to income ratio.
Stated income mortgage loans used to be a product of the past but no longer. Stated income loans are now often referred to as alternative loans that share similar qualities to these loans are starting to make a comeback. These loans — more accurately referred to as “alternative documentation loans” or “cash flow loans for investors” — are becoming more popular. These alternative documentation methods meet the ability-to-repay standards in the law, but the methods help borrowers qualify for mortgages that traditional lenders won’t issue.
Lenders offering these alternative income documentation methods are often called “non-QM” lenders. Non-QM stands for non-qualifying mortgage lenders. Non-qualifying doesn’t mean bad or unsuitable mortgages; rather, it means that the loans cannot be sold to Fannie Mae or Freddie Mac.
If you’re a self-employed borrower or a real estate investor, mortgages from a non-QM lender may be the best way to purchase a house. Below we explain how self-employed borrowers and real estate investors can find alternative documentation loans suited to their needs.
Stated income Mortgage loans for self-employed borrowers
Variable incomes combined with tough documentation requirements make traditional mortgages difficult to obtain for some self-employed borrowers. Today, alternative documentation loans, called bank statement loans, are taking the place of the stated income loans of a decade ago.
After determining a borrower’s income, lenders determine the maximum loan size based on a ratio of debt to income. The debt-to-income ratio is the percentage of a borrower’s monthly income that could go towards a mortgage and other forms of debt.
Traditional mortgages generally limit debt-to-income ratios to between 36% to 45%, depending on a borrower’s credit score and the size of their down payment. Stated loan lenders may allow borrowers to take on loans with debt-to-income ratios up to 55%, though the actual ratio will depend on the lender and a borrower’s other characteristics.
Stated income loans allow borrowers to direct a larger portion of their income towards their mortgages, but these loans also require larger down payments. Borrowers with a great credit history may be able to purchase a house with a 10% down payment, but lenders may look for even larger down payments in some cases. By comparison, traditional mortgages allow down payments as low as 3%.
We have Stated Income Loans for real estate investors.
Another group that stands to benefit from alternative documentation methods are real estate investors. The law that governs income documentation only applies to mortgages for owner-occupied housing. That means that real estate investors may be able to take on mortgages for investment properties without providing any income documentation. Instead, select lenders will underwrite mortgages based on the expected income from the property.
Alternative underwriting standards for investor loans
Even if you’re a real estate investor, traditional lenders use your existing income to qualify you for a loan. Expected rental income is not counted when lenders issue traditional mortgages. Based on these qualification standards, real estate investors may struggle to find a loan.
However, these days not all lenders require investors to document their income. Ability-to-repay laws don’t apply to investors, so some lenders are starting to issue investment loans based on the expected returns of the property. These loans are called cash flow loans since lenders underwrite the loans based on the expected cash flow from the property.
Whether investors or self-employed, borrowers should be careful to understand their mortgages, and compare rates from multiple lenders before choosing a loan. We will do that for you.
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