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by Amresh Singh
9 min read
Are you self-employed or have non-traditional income sources? If so, you might be customary with the difficulties of getting approved for a mortgage. That’s where a stated income mortgage comes in.
This type of mortgage doesn’t require traditional income verification but relies on a borrower’s stated income. While it can be easier to qualify, it’s essential to carefully consider the terms and requirements before moving forward with a stated income mortgage.
In this article, we’ll explore what a stated income mortgage is, how it works, and the pros and cons of this loan.
Definition and Purpose of a Stated Income Mortgage
A stated income mortgage, also known as an alternative income verification loan, is a mortgage that doesn’t require traditional documentation of your income. Instead, it relies on your stated revenue in the application.
This type of loan works best for self-employed borrowers who may need help proving their net income due to irregular and unpredictable income sources. This type of mortgage also works well for those who wish to dodge the hassle of providing extensive paperwork.
How do Stated Income Mortgages Work?
Navigating the world of mortgages can be overwhelming, especially if you’re self-employed or have non-traditional income sources.
That’s where stated income mortgages come in. Unlike traditional mortgages requiring extensive income documentation, stated income mortgages rely on a borrower’s income that they said.
But how exactly do they work? In this part, we’ll delve into the specifics of the requirements for eligibility, documentation requirements, and much more.
1. Eligibility Criteria for Stated Income Mortgages
Since the stated income mortgage is for self-employed borrowers, there are specific eligibility requirements that you must meet to qualify. These include:
- Having a minimum credit score of 620 or higher
- Sufficient assets (in the form of cash reserves) to cover at least three months’ mortgage payments
- 12 to 24 months of Bank statements
- Having a debt-to-income ratio of 40-45% or lower
- Having six months of reserves in an account for the mortgage, taxes, and insurance
- Having two years’ worth of tax returns to show (If applicable)
Some lenders may require income documentation, such as bank statements or 1099 forms. You can also connect with a lender through HomeAbroad to better understand your situation’s requirements.
2. Documentation Requirements
Since the stated income mortgage relies on a borrower’s stated income, there is no need to provide definitive proof of payment. However, lenders may require supplementary documentation, such as bank statements and 1099 forms.
Additionally, borrowers must provide other documents, such as tax returns and asset verification, to prove eligibility for the loan.
3. Interest Rates and Loan Terms
The interest rates and loan conditions for a stated income mortgage can vary depending on the lender and the borrower’s credit score. Generally, these loans have high-interest rates than traditional mortgages because of their higher risk.
Additionally, borrowers may get lesser interest rates if they have sufficient assets in reserve. The loan term is typically shorter than traditional mortgages, with terms ranging from 5-7 years.
Loan-to-Value Ratio and Down Payment
The loan-to-value (LTV) ratio for stated income mortgages can vary depending on the lender. Generally, lenders need a down payment of at least 20-25% to avoid private mortgage insurance (PMI).
We understand that navigating the world of mortgages can be difficult, especially if you’re self-employed or have non-traditional income sources. At HomeAbroad, we specialize in providing our clients with the best possible lenders for their mortgage needs.
How do you Qualify for a Stated Income Mortgage?
If you are going to take a stated income mortgage, there are various steps you can take to enhance your odds of getting approved. But first, here is an outline of the qualification process:
- Building a Strong Credit Profile: The first step is to create a strong credit profile. Borrowers should aim for a FICO score of 620 or higher. It will demonstrate to lenders that you can repay your loan on time.
- Demonstrating Stable Income and Cash Flow: Stable income and cash flow are vital criteria for approval. Although lenders don’t require traditional proof of income, they will want to see an indication that you can repay your loan.
- Providing a Large Down Payment: The amount of down payment you must provide varies by lender, but it is usually 20-25%. A larger down payment will show lenders you are serious about repaying your loan.
- Assembling Documentation (Bank Statements and Asset Verification Documents): Most stated-income mortgage lenders require bank statements and asset verification documents for you to qualify for a loan. So, make sure you have this documentation ready and up-to-date.
- Meeting the Income Ratio Requirements: Most lenders require applicants to meet specific debt-to-income ratio requirements. For example, your monthly debt payments must be at most 50% of your gross monthly income.
- Finding a Lender Specializing in Stated Income Loans: Finally, finding a lender specializing in stated-income mortgages is crucial.
HomeAbroad has skilled and experienced lenders who can help you find the best stated-income mortgage. Many options are available, whether you’re a homeowner, real estate investor, or self-employed borrower.
Tips for Applying for a Stated Income Mortgage
Applying for a stated income mortgage can be stressful, but you can increase your likelihood of approval in numerous ways. Here are several tips to remember:
1. Financial Preparation
Before you apply, make sure your finances are in order. Calculate your assets and liabilities to ensure you have the necessary funds for deposit and closing costs.
Organizing and Documenting Income Sources
Organize and document your income sources. It includes pay stubs, tax returns (If applicable), bank statements, and other income-stated asset or verification documents.
2. Researching Lenders
Do your search and find a lender who specializes in stated-income mortgages.
Finding Reputable Lenders
Once you have found a lender, ensure they are reputable and trustworthy. Read reviews online to ensure you are working with an ethical lender.
At HomeAbroad, we provide top-notch service and unbiased lenders to help you find the best stated-income mortgage solution for your situation. Contact us today to learn more!
Get quotes from the best stated-income mortgage lenders. It’s free!
Comparing Rates and Terms
Finally, shop around and compare rates and terms from different lenders. Be sure to cautiously read the fine print of each loan agreement so you understand the interest rate, repayment schedule, and other details.
3. Seeking Professional Advice
If you have queries or concerns about applying for a stated income mortgage, seek professional advice from an experienced mortgage specialist.
Consulting with Mortgage Brokers or Financial Advisors
Mortgage brokers and financial advisors can guide you to receive the best loan terms. It includes helping you compare rates and terms and improving your credit score.
Understanding the Loan Terms and Risks
Understanding the loan terms and risks associated with a stated income mortgage is essential. Read all documentation carefully and ask questions if something needs to be clarified.
Stated Income Mortgages Programs
Other loan options are available if you don’t qualify for a stated income mortgage. Popular alternatives include DSCR, Bank statement loans, asset-based loans, and non-bank financing loan options.
1. DSCR (Debt Service Coverage Ratio) Loan
DSCR is a loan program for self-employed individuals and real estate investors. It uses the borrower’s monthly gross income from rental property to determine their debt service capacity.
You can also learn about DSCR loans in depth through our guide.
Requirements for DSCR Loans
- A credit score of 620 or higher
- DSCR ratio of 1 or above
- Down payment of 20-25%
- Property appraisal and 1007 rent schedule
Find the best DSCR loan lenders. It’s free!
2. Bank Statement Loans
Bank statement loans are for self-employed borrowers who need traditional income documentation. Instead, lenders rely on bank statements to verify the borrower’s income and ability to reimburse the loan.
Learn about bank statement mortgages through his blog, or you can contact a lender through HomeAbroad who can quickly help you acquire a bank statement mortgage.
Requirements
- DTI (Debt-to-income ratio) of 45%
- A credit score of 620 or more
- 12-24 months of bank statements
- Down payment of 20-25%
Find the best bank statement loan lenders. It’s free!
3. No-Doc Mortgages
No-doc mortgages are for self-employed individuals who don’t have traditional income documentation. These loans do not require traditional income verification; lenders use alternative methods like bank statements, 1099 forms, or assets to assess creditworthiness.
Learn about the No-doc mortgage guide through our blog, or connect with lenders through HomeAbroad to learn more about the loan.
Requirements
- Down payment of 20-25%
- 620 or more credit score
- Bank statement, asset details, 1099 forms
Find the best no-doc mortgage lenders. It’s free!
4. Asset-Based Loans
Asset-based loans provide an alternative to traditional income verification. With these types of loans, lenders rely on the borrower’s assets (such as stocks, bonds, and real estate) as collateral for the loan.
If asset-based mortgage loans caught your interest, learn more about asset-based mortgages in this guide.
Requirements
- DTI (Debt-to-income) of 45% or less
- A credit score of 620 or more
- LTV (Loan-to-value) as set by the lender
- Tangible assets (Bonds, accounts, real estate, etc.)
- Down payment of 20-25%
Find the best asset-based mortgage lenders. It’s free!
5. No Income Verification Loans
No-income verification loans are for self-employed individuals who don’t have traditional income documentation or don’t want to verify income. These loans rely on the borrower’s stated income and assets to prove their creditworthiness.
Requirements
- Down payment of 20-30%
- DTI of 45%, but may change according to lender
- Employment history (if necessary)
- Bank statements, 1099 forms, or assets according to the lenders
Find the best no-income verification loan lenders. It’s free!
You can learn about all the loan conditions for an income verification mortgage here or connect with lenders through HomeAbroad and learn about the conditions.
Note: Loan Requirements also change depending on the lender, so it’s best to consult a lender.
How to Find Stated Income Mortgage Lenders?
Not all lenders offer stated-income mortgages, so you must scout for those who do. In addition, finding a mortgage lender who provides stated-income loans may be time-consuming if you’re self-employed or have a fluctuating income.
HomeAbroad has just the right lender for you as we research and find potential lenders, verify their qualifications, and connect them with you. In addition, it will help you preserve time and effort during the loan process.
Our team of professional lenders is available to answer any questions about the loan procedure and get you the best rates possible.
What are Some Pros and Cons of Stated Income Mortgages?
Stated income mortgages can be an excellent option for self-employed borrowers who need help to provide definitive proof of income. But, as with any loan, there are several pros and cons.
Advantages of Stated Income Mortgages
Stated income mortgages offer several benefits over traditional mortgages. Let’s explore the advantages of opting for a stated income mortgage.
- Streamlined Application Process: One of the significant advantages of a stated income mortgage is that the application process is much more straightforward than traditional mortgages. In addition, this type of loan doesn’t require extensive income documentation, so you can get approved faster and with less hassle.
- Privacy Protection: Stated income mortgages also offer privacy protection for borrowers who don’t want their financial information publicly available.
- Qualification without standard Income: Stated income mortgage loans are also ideal for borrowers who don’t have traditional income sources, such as rental or investment income.
- Flexibility for Self-Employed and Commission-Based Individuals: Stated income mortgages are suitable for individuals who need help to provide definitive proof of payment, such as the self-employed or those who receive commission-based compensation. It makes it easier for these borrowers to get approved without needing to submit extensive paperwork.
- No employment check: Most lenders will not require a full employment and income check, allowing for more flexible qualification criteria.
- Expanding Homeownership Opportunities: Stated income mortgages can open up new possibilities for people who may not otherwise qualify for a traditional loan.
Disadvantages of Stated Income Mortgages
Despite their advantages, stated-income mortgages have some drawbacks that borrowers should be aware of.
- Higher Stated Income Mortgage Rates and Fees: Lenders may charge higher interest rates and fees since stated-income mortgages are higher-risk loans. It means that borrowers should shop around to find the best deal possible.
- Limited Availability: Not all lenders offer stated-income mortgages, and rates can vary significantly between lenders. Additionally, some lenders may not offer stated income loans for certain geographical areas or types of properties. HomeAbroad has several lenders who can provide you with a stated-income mortgage.
A stated-income mortgage can be an excellent option for borrowers who need help providing definitive proof of income. However, borrowers should know these loans’ potential risks and challenges.
Conclusion
A stated-income mortgage can be an excellent option for self-employed individuals and investors looking to purchase or refinance investment properties. You can find the best loan terms and rates with the proper preparation, research, and professional help.
HomeAbroad connects you with the best stated-income mortgage lenders to finance your property hassle-free. Contact us today to get started! With our help, you can accomplish your financial goals. Good luck with your home loan journey!
Frequently Asked Questions
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Can you use the stated income on a mortgage?
Yes. Stated income mortgages are for self-employed individuals and investors who may not have traditional income documentation but can provide an accurate and verifiable income statement.
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What credit score do you need for a stated income mortgage?
The credit score requirements for a stated income mortgage vary from lender to lender, but generally, it is 620 or higher.
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Do stated-income loans have higher interest rates?
Generally, stated-income loans have slightly higher interest rates due to their perceived risk. However, every lender is unique, and there are ways to mitigate this risk.
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What is a stated income application?
A stated income application is a loan application in which the borrower doesn’t need to deliver proof of income. The lender relies on the borrower’s stated income as declared in their application.
It is crucial to note that lenders may need further documentation, such as bank statements or asset information, to validate the stated income.
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How does a stated income mortgage work?
A stated income mortgage is a loan program designed for self-employed individuals and investors who may need more traditional income documentation.
The lender relies on the borrower’s declared monthly gross income as stated in their application rather than requiring proof of payment from tax returns or other sources.
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How do you prove your stated income?
Lenders may require further documentation, such as bank statements or asset information, to validate the stated income. Lenders may also conduct an in-person interview with the borrower to verify their claims.
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What is the rule of thumb for a mortgage to income?
Generally, housing expenses should not exceed 28% of the borrower’s gross income, and total debt obligations should not exceed 36%. However, these requirements may vary from lender to lender.
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Do stated-income mortgages still exist?
State-income mortgages still exist and can be an excellent option for self-employed individuals and investors looking to purchase or refinance investment properties.
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Who does the Stated Income mortgage?
Many lenders offer stated-income mortgages, but the terms and conditions may differ from one lender to another.
At HomeAbroad, our experienced mortgage lender can give you the best loan program for your needs. Contact us today!
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Prior to co-founding HomeAbroad, Amresh has worked for one of
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