Stated Income Loans For California
After the Dodd-Frank legislation piece was passed more than a decade ago (3), stated income loans initially disappeared (5) as they were partly blamed for the collapse of the housing market (1). Some years ago, the Trump Administration passed the S. 2155 (7) that even when it did not repeal (10) the Dodd-Frank Act (9) or the relevant chapter of the USC (6), it rolled back several of its prohibitions (8). This allowed stated income loans for California to return (4) with some modifications (2) as we will see now.
So today, after this new legislation, what are actually the stated income loans for California?
Stated income loans for California are a variant of loan contracts where the prospective borrower demonstrates his ability to pay with bank statements or other alternative documents at the request of the lender. Californian borrowers can become eligible for a stated income loan without providing W-2 forms, and are only required to submit bank statements issued by his financial institution.
Situation For California
These stated income loans are especially convenient for borrowers in California. The reason is unique in the US. There are many lenders in California that would accept a borrower who cannot offer much than his bank statements and would not qualify for a conventional loan. Heavy competition among lenders is making the requirements easier for prospective borrowers.
There are many consultants in California who work in Silicon Valley. Many of these, acquire their properties through stated income mortgage loans.
These are freelancers, self-employed consultants that work as enterprise architects, ERP consultants, developers, or project team leads. They have massive tax deductions. Therefore, they have a very low adjusted gross income (AGI). With this low AGI, they receive little attention from lenders of conventional loans.
Lenders in California got back on their feet quite rapidly and targeting the large chunk of the market that cannot be catered by conventional lenders, and was originated by these consultants and start-ups related to technology as well.
Requirements To Obtain Stated Income Loans In California
Normally, lenders of conventional loans in California, sell the loan to Fannie Mae, who normally purchases home mortgage loans from commercial banks, or big banks or to Freddie Mac, who on their side, purchases home mortgage loans from smaller banks and lenders. With this operation, they gain liquidity to provide more loans.
However, these stated income loans cannot be sold to these agencies. Therefore, the lender has to be stricter with the requirements.
- Relevant proof of income. In California, the stated income loans require a range of bank statements of at least six months, and typically we see that lenders and underwriters request 2 years of bank statements.
- Interests are higher, up to two percent of the normal rates. In California, there is much more competition among subprime lenders. Therefore, we will see a rate that is just one percent higher.
- Credit scores of at least 650. Normally they are requesting 680 of credit score. This is a very trustable algorithm so non-conventional lenders are requesting here higher scores to cover themselves.
- A timeframe of about six months with cash reserves evidenced by documents issued by financial institutions. This requirement varies a lot by the lender.
- Very low debt-to-income ratio. We are seeing about seventy percent requirement.
Who Can Benefit?
Among others, stated income loans benefit the following individuals:
- Self-employed people who work as consultants, developers, and those who work in IT in California as freelancers. They have deducted so many expenses from taxes that their demonstrable monthly income looks very low in the papers but have the required ability-to-pay.
- Self-employed who own a small business that goes well but where they cannot evidence tax returns or earnings. However, they possess bank statements that cover a timeframe of preferably more than one year.
- Highly commissioned people who may have a low base salary but make most of their income on commissions or tips.
- People who cannot document at least 2 years of income at their current income levels, but just one or even less.
- People who make plenty of money but however, do not want to disclose their income for one reason or another.
Stated income loans for California are advantageous because there are so many non-conventional lenders that are competing for these loans that have turned the requirements down and made them easier to access for the potential borrowers.
If you are considering financing under the stated income loan program, make sure to take advantage of the variety and be patient in shopping. Guidelines may vary greatly.
Just a few years ago, stated income loans were very popular and there were plenty of stated income lenders who had flexible guidelines and low stated income rates.
Then the housing crisis hit and lenders began pulling their stated income mortgage programs. As lenders ceased offering stated income loans, many small business owners and other individuals found it difficult to get the financing they need because of their unique income situations that cannot be met by conventional loans.
We have interesting articles about non-conventional mortgage loans. The basic ones we will recommend to you are stated income loans, where we discuss if they are currently legal or not, how can you obtain one, and the situation of these loans in California. We are also covering other non-conventional mortgages, such as the ITIN mortgages, luxury home financing that is a figure similar to the jumbo loans, the no ratio loans that do not consider the debt-to-income ratio during the underwriting process, and those loans offered by Funding For Flipping.
If you are into more conventional mortgages such as FHA mortgages, I suggest you read the following related articles described below.
We explain the FHA loan requirements completely, with the current limits for this year. We also go through the appraisal guidelines, and moreover, we are worried about the peeling paint and why it can be an issue.
Completing forms is necessary, so we also study the number format of an FHA case and how to submit an FHA file, how to complete the form HUD 92900, the form for the FHA notice to the homeowner, and the FHA Financing Addendum.
Regarding special housing programs, I would like to include the FHA Back To Work Program.