Stated Income Loans
Stated income loans for mortgages were one of the many causes of the disintegration of the US housing market in 2008 (1), called the “housing bubble” (2). Therefore, in 2010, the Obama Administration passed the Dodd-Frank reform legislation (3) which in practice prohibited to institute loans that are granted with the sole stated income declaration from the prospective borrower (4) as the only evidence of his eligibility and ability-to-pay his obligations derived from the loan covenant (5).
After all the damage caused by the Dodd-Frank legislation piece to access to housing (14), community banks, and American families (6) (7) who, as explained by White House (8), were impeded access to housing (9), the Trump Administration passed severe reforms to roll back many segments of the aforementioned legislation (12) and to the Commercial Code (10) that did not repeal the Act (11), but empirically allowed the return of a variant of stated income loans (13). Stated income loans return, however, is with the condition that this affirmation of the “ability to repay” from the prospective homebuyer or borrower (14) is evidenced by the submission of documents and statements issued by banks or relevant financial institutions (15) (16). Furthermore, the debtor of the mortgage does not occupy the property subject of the contract (17).
So, in a nutshell, after the rollback of the Dodd-Frank financial reform, we can define what are stated income loans nowadays like this.
Stated income loans are a type of eligibility criteria for loan contracts wherein the borrower evidences his ability to repay the contractual obligation through the submission of documents issued by financial institutions such as bank statements. These stated income loans are suitable for self-employed subjects who cannot exhibit evidence to document their repayment ability and that have maximized their tax deductions, thus reducing their adjusted gross income and therefore, becoming less eligible to lenders.
As these stated income loans or now most adequately called “bank statement loans” are not conventional mortgages and thus, are offered by non-qualifying mortgage lenders, they cannot be sold to Freddie Mac or Fannie Mae, like mortgage-backed securities, what is what lenders usually perform with conventional mortgages. Freddie Mac or Fannie Mae are not originators, but purchasers of these mortgages.
Therefore, as stated income loans cannot be easily negotiated by the lender in the secondary house market and are less interesting to underwriters, the lender must assume more risk. As a consequence thereof, expect a lower loan-to-value and a higher FICO score required to the prospective borrower.
Of course, not all lenders offer non-qualifying mortgage lenders. Complete our form to gather information from diverse lenders that offer these mortgage loans.
Pros And Cons Of Stated Income Loans
- Downpayment required is low, typically it is ten percent.
- No pre-payment penalties.
- The approval process is faster because there are fewer documents involved in the qualification.
- Tax returns are not required, so the ability to pay is normally evidenced only by a range of bank statements.
- One of the best option for freelancers, consultants and self-employed workers who may not be eligible for qualification with conventional mortgage loans
- Few non-qualifying mortgage lenders in the market, as these operations are riskier. However, we can help you to contact one filling our basic form to request more information.
- More risk for the lender, so he has to hedge this risk through a higher credit score required, typically, no less than 600, mandatory downpayment, and a lower loan-to-value ratio. Expect higher rates in general.
- The Dodd-Frank legislation was partially rolled back but anyway it is still an impediment for American families to obtain access to housing and credit and affects community banks as well.
- No programs are available from the government such as HUD, USDA, VA, or FHA. Those government programs have strict requirements and there are no “FHA or VA stated income mortgages” loans at all.
- While the requirements are more lenient than with conventional mortgages, you still need to provide a range of bank statements as evidence of your ability to pay since the Dodd-Frank Act was passed.
These loans require very little documentation and no tax returns are needed offering a very quick loan process. Borrowers can get up to 70% loan to value ratio of the property and have no prepayment penalties. This might sound strange but these stated income loans are perfect for independent contractors who have difficulty documenting their income.
This is ideal for anyone looking to buy a non-occupant property for investment purposes. Small business owners and investors use these loans to grow their equity for rental properties. Whether you are an investor, house flipper, or landlord with multiple write-offs on your tax returns you can buy these investment properties without fully documenting your income.
Most of the disadvantages come in the type of loan you are getting. These loans require large down payments, typically upwards of 30% and closing costs can be higher than a traditional mortgage.
Applicants should have a fairly good credit score and a large number of reserves for a large down payment. The higher the risk the more the lender will shy away from the loan. The better your financial situation is the more likely you are to be approved. Credit scores of at least 600 are usually needed as well as a high level of income.
So, if you are an investor, landlord, or looking to buy and flip the property, these stated income loans are ideal. Again, I definitely don’t want to scare you with any subprime mortgage fears as many programs have been carefully put into place to prevent that. But, you may qualify and if you’re an investor, this is an excellent option.
Requirements Of Eligibility For A Stated Income Loan
Each lender has different requirements. I suggest you complete a form with us to gather information, and then select the lender that offers you the best conditions. We update frequently this article, and today, you can expect to see requirements similar to these below:
- At least one year of bank statements or relevant evidence. Many lenders are requiring two years of experience along with bank statements.
- Non-owner occupied property.
- Lower debt-to-income ratios can vary by lender, but empirically, in the current standards, expect an average of 70%
- Downpayments tend to be higher, with at least 20% and up to 30%
- Higher credit scores are needed of 600 or above.
- A higher cash reserve may be required.
- Interest rates can be 1% above normal rates
- Stated income loans with no proof of income requirements exist only for investors buying non-owner-occupied properties. These are short-term, asset-based loans. This part of the Dodd-Frank legislation piece was not rolled back or repealed in any way.
Self-Employed Borrowers Access To Stated Income Loans
A freelancer or a self-employed subject cannot be eligible for conventional mortgages due to the extensive documentation required of taxes and sources of income to prove the ability to pay the loan required by Dodd-Frank financial reform.
Freelancers and self-employed workers, declare many expenses in order to write off expenditures from tax obligations and therefore, they remain with less net income and this adds an additional issue for the satisfaction of the strict qualification scrutiny of lenders and underwriters to furnish conventional loans, in general, and mortgages in particular.
The aforementioned prospective borrowers may now submit bank statements of the last semester (or of the last two years as requested by some underwriters in 2020)
It is an ideal alternative for those without enough income on their tax returns to obtain conventional bank funding. Stated income loans permit you to state the amount of income that you and your business earns. Depending on the amount you state, our experts calculate the total that we can lend and the interest rate that you will pay
You don’t have to provide tax returns and pay stubs to receive approval. These loans are available to individuals, investors, corporations, LLCs, partnerships, and trusts. They typically require a lower loan to value and a higher FICO score and are a great alternative if traditional financing is not possible.
Real Estate Investors And Stated Income Loans
Whereas stated income loans are unavailable for real estate objects that are owner-occupied, they are possible for investors looking to invest in real estate property.
These loans would suit very well to prospective landlords, investors who want to diversify their portfolio, and even simple house flippers.
A stated income commercial loan focuses on a parcel of commercial real estate instead of your credit history. The property’s income value must be able to maintain the mortgage, insurance, and taxes for a stated income commercial loan approval. One advantage of a stated income loan from over a traditional commercial loan is that the approval process is faster because there are fewer documents involved for you to qualify.
How Stated Income Mortgage Loans Work?
Stated income mortgage loans do not require a borrower to verify income with tax returns or pay stubs. The borrower is required only to provide a statement indicating the amount of money earned. This provides an approximation of the household’s income. Typically, the stated income lenders want just to determine that a borrower is able to pay the mortgage in accordance with the terms of the loan.
Stated income loans do require a sizeable down payment (usually 30%) as well as a minimum credit score (usually 600). Because stated income loans are inherently riskier than loans with income documentation, the interest rate may be slightly higher than a conventional loan.
As a borrower, stated income mortgage loans are a great way to finance a purchase or to refinance an investment property. As long as a borrower provides accurate information and has a good credit score, approvals are quick and easy, and funding the loan is significantly faster compared to conventional loans. The difference in premiums and interest rates depends on the lender you choose. Different lenders may offer different interest rates as well as processing times.
Examples And Cases
1. You own an investment property such as a rental home or apartment complex that is in need of repair or renovation. The recent addition of numerous stated income loan programs has given investment property owners a way to refinance without proving income on tax returns or verifying through a 4506T. These loans allow landlords to obtain a cash-out refinance to pay for repairs and or renovations to rental properties.
2. You applied for a mortgage loan and were told that you didn’t make enough money to qualify. Over the last 9 years lending institutions have held strong on debt to income ratio caps when it comes to qualifying borrowers for home loans. Only recently have those guidelines been relaxed making available numerous loan programs that use alternative income verification methods. Those methods include employer VOE, CPA letter, and bank statement programs. These programs are sometimes referred to as no income loans and are easier to qualify for than your conventional mortgage loan.
3. You want to get into real estate investing but do not show enough income to get started. If you want to start buying real estate investment properties but cannot qualify due to a lack of provable income then you may need to look into no income loans that take into account the gross rental income that a property will garner on the rental market. This will allow you to build your real estate portfolio and qualify based on the properties earning potential and not your current income situation.
4. You want to leverage your rental property to pay off credit cards or other personal debt. If you own an investment property you can refinance the property and pull cash out to pay off debt. Many times investment property owners are sitting on properties that they own outright or owe very little on the mortgage. For these types of borrowers, no income loans are an excellent way to pay off and or lower their monthly expenses.
5. Family or personal emergencies. Many times life throws unexpected curve balls at us that we struggle to deal with. For borrowers who own an investment property, these situations are not as unmanageable as one may think. Many stated loan programs have evolved past the days of the subprime mortgage. Many lenders have rates starting as low as 5% and can close within 15 days from applying. As we all know money doesn’t solve all problems but it sure can help.
For Whom Are These Loans?
Would these loans be suitable for you? Should you move, instead, into a more conventional loan? Well, let´s see for whom are normally these loans intended, to see if they are convenient for you.
Small business owners who experience large fluctuations in income from year to year might have difficulty with their banks. A no-income check loan might be an option.
Foreign borrowers who do not file tax returns often can’t obtain financing at their bank. A stated income loan might be the solution. This would also include out of state investors, as we have no residency requirements.
Properties that have experienced vacancy or turnover might not reflect enough income on their tax returns to qualify for a conventional commercial mortgage. A lite doc loan might help in this case. These loans include recently rented or recently stabilized properties with a limited track record.
Borrowers who do not qualify for bank financing, or limited post-closing liquidity, and that need a more relaxed approach to income qualification. This might include borrowers with limited seasoning or limited experience owning their properties.
Purposes for Stated Income Loans
We refer normally to mortgages in our site, but let´s not forget that these loans can be used for a wide variety of purposes, including debt consolidation, property acquisition, working capital, property improvements, and refinances. This type of funding can also serve as a source of general working capital.
SISA Mortgage Loans
The abbreviation is Stated Income and Stated Assets. SISA loans can be for residential or commercial properties. Usually, the max loan to value is 70%. There are no credit score requirements for this loan with many lenders. There is are not tax returns or W2s requested.
This is a type of reduced documentation mortgage program which allows the borrower to state on the loan application what their income and assets are without verification by the lender; however, the source of the income is still verified. SISA loans fall into the Alt-A classification and carry a higher interest rate than a prime mortgage.
These loans are nominally intended for self-employed borrowers or other borrowers who might have difficulty documenting their income. Stated income loans have been extended to customers with a wide range of credit histories, including subprime borrowers.
Stated income loans fill a gap of situations that normal loan standards would not approve. Self-employed borrowers often use SISA loans because their tax returns might not reflect the actual cash flow they have available to pay their mortgage. Other borrowers might use a SISA loan because their income comes from sources which are hard to document.
Some lenders may require the borrower to sign a form authorizing the lender to obtain a copy of the borrower’s tax returns from the IRS should the borrower default on the mortgage.
Similar Figures: What Is a No-Income Verification Mortgage?
This is another term for a stated income mortgage. Like a stated income mortgage, this home loan considers other factors besides W-2s, pay stubs, and tax returns to qualify you for a loan. The lender may consider your available assets, equity in your home, and overall cash flow reflected in bank statements.
There are several types of no-income verification mortgages:
- Stated income, stated assets (SISA): No verification of income or assets. No longer exist for owner-occupied properties; these are only for investment properties today.
- Stated income, verified assets (SIVA): Lenders accept assets for loan approval. It is also called a bank statement loan.
- No income, verified assets (NIVA): Like a stated income, stated assets loan, but no income is on application.
- No income, no assets (NINA): These are only for real estate investors. May be called hard money loans, high interest, short term
FAQ – Frequent Asked Questions
Are No-Income Verification Mortgages Safe?
No-income verification and stated income loans are much different than years ago. Because of the Dodd-Frank regulations enacted in 2010, borrowers must show their ability to repay the loan, which makes them much safer. But there is more flexibility in how you show your ability to repay.
What is a SIVA loan?
SIVA stands for Stated Income Verified Asset loan. This type of loan allows you to state your gross monthly income and requires the lender to verify assets – usually done by you providing bank statements or brokerage statements or some type of document that verifies your having the assets you claim to possess on the loan application.
Are Stated Income Loans Available?
Yes, but a stated income loan today still requires you to prove your income and ability to repay the loan. You can prove your ability to repay with bank statements, financial statements, and cash reserves in lieu of tax returns, W-2s, and pay stubs.
What is a SISA loan?
SISA stands for Stated Income Stated Assets. This loan type requires you to state both your gross monthly income and your assets. You are not required to verify these but simply have to state it and the lender will take your word for it.
Are There No Income Verification Mortgages?
Yes. A no-income verification mortgage is another name for a stated income mortgage. It is required to prove that you can repay the loan, but you can use alternative documents, such as bank statements and financial statements.
What is a No Doc loan?
Although guidelines will vary by lender, a true “no doc” loan program is where you don’t have to verify anything other than your identity and citizenship.
How Do I Get a Stated Income Home Loan?
A borrower needs a credit score of 600 or higher, cash reserves, and bank statements that show enough cash flow to pay the loan. A higher down payment could be required for some lenders.
Can I be declined if my stated income is too high?
Yes. It is possible to have your loan declined for the reason that your stated income does not match your job description and title. If you are a waitress and you declare making $10,000 per month, the underwriter will have a reason to doubt the accuracy of your application. Underwriters have resources to see the range of pay based on title and job description – and while not always accurate, they are typically in the ballpark. It is also possible that the underwriter or lender will require that you fill out a form (IRS Form 4506), which allows the lender to request IRS verification of your tax returns for the previous two years.
How Is a Stated Income Loan Different From a Conventional Mortgage?
A stated income loan is different than a conventional mortgage loan in that the borrower can use alternative documents to prove their income, such as bank and financial statements. A traditional mortgage requires tax returns, W-2s, and pay stubs to prove the borrower’s income.
Is there a minimum credit score for stated income loans?
Yes, minimum credit score requirements will vary by lender and program. Normally the credit score required is 600 or more. Californian lenders require less credit score as there is a lot of competition in the non-QM market currently.
Is there a minimum down payment required for stated income loans?
Because the lenders cannot properly verify your income, they make up for the risk by asking you for a down payment (aside from having excellent credit). Minimum down payment requirements will vary by lender and program. They typically require a higher down payment than conventional loans.
We have covered very well different types of mortgage loans: stated income loans, we discuss if they are currently legal or not, and the situation of these loans in California. We are also covering other non-conventional mortgages, such as the ITIN mortgages.
If you are into conventional mortgages, we suggest you read the following related articles.
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