STATED INCOME LOANS: ARE THEYREALLY BACK?

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The housing crisis is constantly being blamed for the“bad” loans or the “liar” loans as the No Income, NoAsset or Stated Income/Asset loans were called. Buttoday they are making a slow comeback. These loansare not going to be as easy to obtain as they were a fewyears back, but they are being made available by manylenders, mostly the lenders that can no longer afford toturn potential borrowers away. There has been a majorrestructuring to the programs, making them muchmore difficult to get approved for, but they are availablefor small business owners and investors.

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WHAT LENDERS WANT FOR STATEDINCOME LOANS

In order for any borrower to be eligible for a stated income loan,they need to have many compensating factors. It is not going tobe as easy as it was in the past to fudge the numbers on yourpaperwork and expect to have a loan handed over to you.Borrowers will need to do their due diligence in order to qualifyfor the loan. This means that they must have outstanding credit,typically a score over 700 and plenty of assets in the bank. Theassets are meant to be used as a down payment as well as forreserves. Most banks are asking for six to twelve months ofmortgage payments to be in the bank at the time of approval.They are also requiring a 30 percent down payment in mostcases.

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A NEW NAME

Because of the “bad” name that Stated Income loans receivedduring the housing crisis, most lenders are considering theman “alternate documentation or income loan.” These loans aremeant to help those borrowers that own their own company oruse housing investments in order to make an income. Onpaper, these borrowers might not look like they make a lot ofmoney, but in reality, they are able to afford a mortgage. Manypeople that are against opening up the possibility of a statedincome loan again worry about the fact that even 1 year ofpayments in the bank is not enough to protect a bank againstdefault on a mortgage that is set to last 30 years.

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THE REASON FOR THE CHANGE

It might seem strange that lenders are willing to put their neck outfor borrowers again, after being burned by so many defaults notthat many years ago. The reasoning behind opening up thepossibility for a stated income loans once again is to help out thelittle guys – the ones that have opened up their own business sincethe economy tanked and so many people have had to becomeentrepreneurs in order to survive. These people are trying to makea living and are doing whatever it takes to make it affordable. Inthese instances, they might take many deductions or write off a lotof expenses in order to minimize their income tax liability. If this isthe case, they are making more money that it shows on paper, yetthey are being denied a mortgage, making it impossible to own ahome.

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WHO BUYS THE STATED INCOME LOANS?

A large problem that lenders are facing with the statedincome loans coming back is who to sell them to. Thereare not many investors that are willing to take the risk ofa stated income loan after what has already happened. Itis for this reason that most lenders that offer statedincome loans keep them in their own portfolio, althoughthere are a few private investors that are willing to takethe risk and purchase the loans.

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If you are looking for a stated income loan, you willneed to make sure that your compensating factorsspeak for themselves. This means that you shouldhave excellent credit. If your credit is even below 700,most lenders will not consider you for this type of loan.In addition, you need to have verifiable assets. Thismeans assets in a bank or investment that areseasoned and verifiable. If you have these items andplenty to put down on your home (if it is a purchase)you might have to search a little harder, but you willlikely find a lender to give you a stated income loan.

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INFORMATION PROVIDED BY:

Justin McHood

Mortgage Commentator

Information Originally Published: 3/26/15

Justin McHood is Americas Mortgage Commentator and hasbeen providing Mortgage commentary for over 10 years.

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