How to Finance a Home with a Stated Income Mortgage

When people think of stated income mortgages, they are often confused. An Arizona stated income mortgage is different compared to a traditional mortgage. While a traditional home loan is lent through a local bank, a stated income mortgage is lent through a private lending company. In this post we will take a look at whether a stated income mortgage is right for you and your situation. Additionally, we will discuss how a stated income mortgage works and where to find one.

Are you a candidate for a stated income mortgage?

Take from this situation: You found a home you really want. You have enough money saved for a down payment, but you need to find an institution that will lend you the additional amount of the house. Who do you lend from and more importantly, would you qualify as a borrower?

Well, it depends on your employment status, credit history and other past financial decisions. In a typical qualification process, the borrower must reveal his/her income and current employment. However there may be situations when you may not wish to use your employment status to qualify for a mortgage loan. You may be self-employed, like for instance, a contractor or insurance agent. Due to the ups and downs of income, it is hard for a bank to label you as a “low-risk” borrower. At this point you should look at another type of mortgage, known as a stated income mortgage.

A bank does not lend stated income mortgages. Instead they lend standard or traditional mortgages, which means that in order to be approved you must retain their requirements. A banking institution’s requirements for a home loan vary slightly between banks, but for the most part requirements are the same. For a typical loan it is ideal to have a standard paycheck from an employer, a long-term credit history and a high credit score. If you do not possess the requirements necessary to obtain a loan from the bank, there are other ways in which to get a mortgage.

How does a stated income mortgage work?

The best way to find out how a stated income mortgage works is to speak to private lenders. There are many different types of private lending. Some private lenders are individuals while others are rather large companies. There is really no difference in whether a private lending company is large or small, however it is important that you are comfortable with your lender. Also when searching for a private lender, be aware of the advice you are given and whether they specialize in the area of home loans. Better yet, make sure the company or individual you are dealing with specializes specifically in stated income mortgages.

Where do I find a stated income mortgage?

A company that specializes in stated income mortgages is Level4Funding. Not only do the people at Level4Funding knowledgeable in the area of stated income mortgages, they will help you buy the house you really want. Don’t delay. Call us today at 623-582-4444!

Dennis Dahlberg
Broker/RI/CEO/MLO

Level 4 Funding LLC
Tel:  (623) 582-4444 | Fax: (888) 279-6917
www.Level4Funding.com

NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027

Qualifying for a Stated Income Mortgage

A stated income mortgage can be a valuable mortgage type for individuals who are self-employed or make their living on seasonal employment. Without traditional income verification a stated income mortgage does not require the same documentation of income as a traditional home loan.

When you apply for a home loan, they will look at your financial life under a microscope. You will be asked to provide bank statements, tax records, support documents like W-2s, pay stubs, employer verification, and a host of other financial and personal documents. This is done in an effort by the bank to determine the risks of default of a particular borrower. Since the bank is lending such a large sum of money in a home mortgage transaction, it takes special care to lend to qualified buyers who can repay the loan.

For most people, providing documentation of their income is as easy as sending an electronic copy of their paystub. However, there are certain situations where providing a pay stub is nearly impossible. For these borrowers, it is beneficial to apply for a stated income mortgage. In this type of loan the buyer does not have to provide documentation of his income and is taken at his word as far as how much money he makes.

One situation where a stated income mortgage is beneficial is in the case of being self-employed. A person who owns his own business might not receive the same income each month as his income is based on when business is doing well. Instead of having to provide two paystubs that give only a partial picture of his income, a stated income mortgage allow him to include his income for the year, not just a single month.

A similar situation in which a borrower would benefit from a stated income mortgage is in the case of seasonal employment. Take for example a fisherman who makes the majority of his money in the winter. If he goes to buy a home in the summer, he will not have paystubs to show his earnings. So, even if he makes over $100,000 each fishing season he could be denied a home loan. A stated income mortgage would allow him to use his entire income to qualify for a loan.  In addition to seasonal employment, there are careers with other non-standard income schedules. A Realtor would be a good example of such a career. A Realtor may make $8,000.00 in commission one month, nothing the next, $16,000.00 the third and then nothing for 3 months. Although the agent is making enough money to purchase a home, the instability of her income might disqualify her from obtaining a traditional loan. By using a stated income mortgage she could account for all of her income, even if she isn’t earning any during the current month.

Individuals who earn money from investments can also benefit from a stated income mortgage. Many investors, particularly real estate investors, have a high debt to income ratio. However, because they often own multiple properties their disposable income can be quite high. A traditional mortgage would look at the numbers and the debt ratio and not consider how much income the properties were generating. A stated income mortgage would allow the investor to qualify, even with a high amount of debt due to properties owned.

Arguments against Stated Income Mortgages

One of the main criticisms of stated income mortgages is that they are an easy target for fraud. Since income is not verified using traditional documentation, it is easy for an applicant to overstate his income. For this reason stated income mortgages have been given the rather unflattering nickname of “liar’s loans.” An investigation into stated income loans by the IRS and various lending companies showed that there has in fact been a significant amount of loans where the income claimed for the loan was higher than what was reported to the IRS. Approximately 60% of stated income loans were over-inflated.

Although it is a bit shocking that 60% of stated income mortgage applicants overstated their income, there are a variety of reasons and factors that could have influenced this. The most obvious is that the borrowers lied about their income to qualify for a higher loan amount. This would be especially problematic because it could lead to an increase in loan default and foreclosure rates. Another reason that there could be discrepancy in the two declared incomes could be that what is reported to the IRS is less than what the individual actually made. For example, many servers do not declare tips (although they should be as not doing so is illegal) so their tax income and actual take home pay may be different.

Despite concerns about fraud, stated income mortgages can be a useful tool for borrowers with unstable income.

If you are in a situation where you are having difficulty qualifying for a traditional home loan because of the instability in your income source or difficulty providing proof of income, a stated income mortgage could be a good option for you. Contact a mortgage broker to learn more about all of your home loan options.

Level 4 Funding LLC

Dennis Dahlberg, Broker/RI/CEO

NMLS 1058389 AZMB 0923961

23335 N 18^th Drive Suite 120

Phoenix AZ 85027

623-582-4444

www.Level4Funding.com

A Stated Income Mortgage and You: How to Secure a Home Loan without Income Verification

Traditional income verification is an important step in many mortgages. However, for some stated income mortgage is a way for borrowers with non-traditional income sources to qualify for a home loan.

Traditional income verification is an important step in many mortgages. However, for some borrowers this can be an almost impossible process that can lead to qualifying for a significantly smaller home loan than they can afford, or even being denied a loan altogether. A stated income mortgage is a way for borrowers with non-traditional income sources to qualify for a home loan.

When you apply for a home loan, the bank looks into every aspect of your finances. They run your credit report, look at account statements for all assets, verify your employment, and verify your income. This involves looking at tax returns and all supporting documents for two years. You will be asked to provide you W-2s, W-9s, student loan interest sheets, receipts, and any other documents that verify your income. You will also have to provide your most recent two pay stubs. The bank then puts this information together to get a complete picture of your finances which it uses to make a determination about the amount of mortgage credit you will be allowed to borrow.

For most borrowers, the income verification process is a pain, but doable. They can provide all the information the bank needs and qualify for a mortgage. However, for some borrowers, income verification can be almost impossible. In these cases, a stated income mortgage can be a useful tool in qualifying for a home loan. A stated income mortgage is a specific type of mortgage originally designed for individuals who are self-employed or make their income seasonally. In order to qualify for a loan, the borrower states his income to the bank and is taken at his word. The bank does not require income verification, W-2s, or paystubs.

Stated income mortgages have inherited a bit of bad reputation, earning the nick name “liar’s loans.” Opponents point out how easy it is to commit fraud by overstating income. There are numbers to suggest that about 60% of people who received a stated income mortgage made less money than was stated. This was proven using tax returns. However, there are a number of reasons that a borrower’s taxable income was less than he declared for a mortgage. He may have had a slow year, or may have made money under the table like in the case of a side job or server.

When is a Stated Income Mortgage a Good Option?

Despite their less than flattering nickname, stated income mortgages can be useful certain borrowers to qualify for home loans. Specifically, individuals who are self-employed, independent contractors, freelancers, new to a job or career field, or have a side job or business can benefit from a stated income mortgage.

One case in which a stated income mortgage is a smart choice is self-employment. This is actually the income situation that the mortgage type was designed for. For many small business owners, independent contractors, consultants, and other self-employed business people, it can be difficult to furnish proof of income to the bank’s satisfaction. Income sources may be considered unstable or there may simply not be a traditional W-2 or pay stub that can be provided. A stated income mortgage allows the business owner to state his/her income and qualify for a mortgage based on that statement.

Another situation that can benefit from a stated income mortgage is a career that does not have consistent income schedule. A Realtor would be a good example of such a career. A Realtor may make $8,000.00 in commission one month, nothing the next, $16,000.00 the third and then nothing for 3 months. Although the agent is making enough money to purchase a home, the instability of her income might disqualify her from obtaining a traditional loan. By using a stated income mortgage she could account for all of her income, even if she isn't earning any during the current month.

A third situation that would benefit from a stated income mortgage would be in the case of a freelancer or consultant. People who are employed in these fields generally tend to work for more than one company. Their work is also often seasonal or may vary from month to month. During the mortgage qualification process, banks look at 2 months of pay stubs. If it is a slow month, the amount of pay may not reflect the actual amount that borrower earned and therefore he/she may not qualify for a high enough amount, if at all. In addition, banks require that a borrower works for a company for a year or more before that income source is considered valid. A freelancer or consultant often works for many different companies but only one or two on a permanent basis. Therefore the actual income of the borrower could be $200,000 but only $50,000 is counted as income by the bank. A stated income mortgage allows the borrower to use their actual income amount to qualify for a mortgage.

A final case in which a stated income mortgage is a good option (although this is certainly not an extensive list), is for someone who makes his or her living from investments. Take a real estate investor who owns multiple properties all with loans. Even if this investor makes $100,000 a year in disposable income and has the mortgage on each property covered by rent, his/her debt to income ratio might be too high on paper to be given an additional home loan. A stated income mortgage accounts for the actual disposable income this individual has to spend each month, rather than just what the financial situation looks like on paper.

If you are in an employment situation where a 

stated income mortgage makes sense, find a broker to get started.

Most traditional banks do not offer stated income mortgages as they are considered higher risk loans. Brokerage firms and smaller banks often have programs that will work with borrowers who need a stated income mortgage.

Level 4 Funding LLC

Dennis Dahlberg, Broker/RI/CEO

NMLS 1058389 AZMB 0923961

23335 N 18^th Drive Suite 120

Phoenix AZ 85027

623-582-4444

www.Level4Funding.com

Why Do You Need a Stated Income Mortgage?

There are many ways to purchase a home. Of course you may need a down payment along with a mortgage. There are many different types of mortgages that you can apply for depending on your financial circumstances.

If you have a typical office job with documented proof of income such as pay-stubs, W-2’s or 1099 forms, you

can easily apply for a mortgage loan from a local bank. However if you are an individual that owns a business or has any other alternative source of income it may be harder for you to be approved for a mortgage loan.

For example, as a small business owner you know it is hard to supply a proof of income. When securing a loan you may be able to supply tax returns or bank deposits. However according to most reputable banking institutions, supplying tax returns or bank deposits are still not enough to prove a stable income.

Government-instituted banks want to know if your income is stable enough to pay off your loan payment every month. They see your profession and fluctuating income as a “high risk” situation. Due to your uncertain fluxes in income, banks do not wish to be held responsible if you have to default on your mortgage.

Here’s the dilemma: You are a real estate agent and see a dream of a house that you would like to buy. You have only been in business a little over a year. Therefore you cannot even supply the common 2 years worth of tax returns. You have made regular deposits to a checking account and hope that the deposits will be enough to be approved for a loan. Unfortunately the mortgage options available at your local banks are stringent about checking proof of income, and will not accept any bank statements. What do you do?

This situation doesn’t sound fair, but you still have a chance to turn your dream home into a reality. Forget typical banks for the moment and apply for a stated income mortgage loan instead.

  

What is a stated income loan? 

A stated income mortgage loan is a home loan that requires no proof of income other than the income you officially claim or state. The income you claim is the income you have according to the mortgage lender. And the amount of money you receive will be based on the amount of income that is stated.

A stated income loan is also known as an alternative or no-doc loan, which ultimately means “no document”. Yes “no documents” are needed, as in the official documents typically used to prove income at a banking institution.

 

This is perfect for borrowers that have the ability to pay off a loan but are in a complicated financial dilemma – they are self-employed, they are business owners, they are real instate/investment agents, etc.

Of course it is best to apply for a stated income mortgage if you know you are able to pay off the loan within its intended time frame. Considering most individuals that apply for a stated income loan are simply unable to supply proof of income, this shouldn’t be a problem. However it is advised to only claim the amount of income closest to what you’ve made in the past. If you cannot estimate past income, make an educated assumption of future income.

Are you self-employed and having trouble getting approved for a home loan?

Consider applying for a stated income mortgage loan.

Pick up the phone and contact Dennis at Level 4 Funding:  623-582-4444. As the home loan experts in Arizona, we will give you the advice you need to get approved.

Level 4 Funding LLC

23335 N 18^th Drive Suite 120

Phoenix AZ 85027

623-582-4444

www.Level4Funding.com