Answer #1
The stated income mortgage program is a form of mortgage loan
program that is part of a family of "low-doc" and "no-doc"
loans, meaning little or no documentation is required for the loan. A conventional
mortgage loan requires lots of documentation or "full-doc" including a list
of all creditors, last two or three paycheck stubs, W-2s and returns on income
tax for the past two years, bank statements going back two months, and legal
documents in case of bankruptcy or family misadventure.
Prospective home purchasers who cannot show income but have the income and
good credit history to obtain a mortgage loan are prime candidates for exercising
stated income home loans. To qualify for this loan, the borrower only needs
to state income for the last two years or more and have good credit.
But the terms low-doc and no-doc may be misleading. Even though the stated
income guidelines do not require W-2s and pay stubs to prove income, the borrower
must provide bank statements, tax returns, and provide a list of assets and
debts. The stated income, low-doc loan can require a substantial amount of documentation.
Even the no-doc loan requires at least a property report and credit appraisal.
Bottom line, the lender needs to see the borrower's debt-to-income ratio.
The borrower must list his assets and debts. Since the lender assumes more risk
with less documentation, stated income mortgage rates can range anywhere from
a half to three points higher than the par rate for a conventional mortgage.
Other types of minimal or no documentation mortgages include "no-ratio"
loans, which means the lender does not compute the debt-to-income ratio. But
the borrower does provide a list of assets such as bank account balances, stocks
and bonds, real estate, and business ownership(s). The guidelines for this type
of loan include someone who is wealthy and has a lot of assets. This person
keeps a low profile and does not want his financial details made public.
The "no-income, no-asset" or NINA loans are similar to no-ratio
loans and require the least amount of documentation. This type of borrower also
wants a low financial profile, perhaps someone who's famous or infamous.
With the NINA loan, all the documentation the borrower need provide is an excellent
credit history and property appraisal. The better the credit score, the less
documentation the lender will need.
On a side note, a borrower can take out a mortgage on a manufactured as well
as conventional home. A stated income mortgage loan also exits for manufactured
homes and the same stated income loan principles apply. The lender needs to
see the borrower's manufactured housing stated income.
The typical profile of a borrower participating in a stated income
mortgage is someone with an irregular income who works on commission
or is self-employed. This borrower must disclose annual income and tax returns
for the past two years or more including bank statements or bookkeeping records.
Even though the lender does not check as much documentation regarding the borrower's
income, the source of the income needs to be verified. Oftentimes, the source
of the income is more important than the actual income. It is more likely that
the source of the income be embellished since the income is evident. Borrower
and broker have nothing to gain by lying about income as it only exposes both
borrower and broker to financial liability. The prevailing loan industry attitude
is actual income trumps its source.
It is a good policy to check with a trusted mortgage broker to determine if
you really are a candidate for these alternative mortgage plans. In having the
broker analyze your income situation, you may realize that proof of income is
not impossible and can be documented with the help of a professional. The right
broker may save you money, turning that initial low-doc loan into a conventional
loan.
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