What Are Stated Income Loans?
A Stated Income Loan is a loan program that does not require borrowers to document their source of income to the lender. Therefore, borrowers who receive a W2 or 1099 form (for self-employed or independent contractors) at the end of the year do not have to provide it to gain loan approval. IRS tax returns for personal or business are also not required. Borrowers are able to just state their income on the loan application and rely on their credit score, assets, and occupation type for approval. Some lenders refer to this loan type as a No Income Verification Loan (NIV).
It's worth noting that many of the flexible terms and guidelines for this program has changed since 2008 and become a lot stricter due to borrower defaults. For example, to refinance your home on a stated income mortgage, homeowners will now need 30% or more equity and the same rule applies for a purchase; 30% or more down payment. In states that badly need them like California, New York, and Texas, the availability has been reduced even more due to the Dodd-Frank Financial Reform Bill which makes them illegal for a lender who insures the loan. To offset the lack of availability, there are a few portfolio lenders and small regional banks that still offer them, just not the large financial depository institutions like Bank of America and Wells Fargo Bank. Please discuss your loan options with a designated NMLS licensed originator or lender.
If you need financing but your income is difficult to prove or document then the answer for you is a stated income loan.
Types of Stated Income Loans
Stated Income Verified Assets Loan: (SIVA) - Borrower approval is based on your credit history, verifiable liquid assets, and of course the income you input on the application. If your income is "X" amount, then the "verified assets" should correlate to that income the borrower(s) puts down on the application. As a niche loan, this program is limited to certain states, requires equity of 30% on refinance loans and 30%-to-40% down for purchases. Some programs require the borrower(s) to sign IRS form 4506 which gives the lender permission to verify tax returns.
[Updated Mar. 3, 2013]. If that is not possible, see if you are eligible for a 12 or 24 month bank statement program.
Review the Program Details for the available states (Currently California, New York, New Jersey, Massachusetts Only). There are "3" types of NIV or No Income Verification loans for purchase or refinance that lenders typically offer borrowers explained below:
Stated Income Stated Assets Loan (SISA) - Borrowers just state their income and assets on the 1003 loan application. Neither their income nor their assets are documented. This program has a slightly higher interest rate because of the risks involved when assets and income are not verified.
No Ratio Loans - Similar to the programs above except that the income section is left blank on the application. This is not available at the moment from prime lenders but it is from hard money lenders.
(updated Mar 2013, - Click Here for rules)
Requirements for Stated Income Loans:
Lenders typically want applicants to have at least a 2 year history of employment or self-employment in the same industry. Self-employed borrowers can prove their history by obtaining a letter from an accountant or CPA on their company letterhead to get verification. It can be any accountant or CPA as long as they have reviewed your taxes.
Additional ways to prove self-employment are to:
1.) provide two years of business license copies or
2.) confirmation from (3} business associates who have no interest in your business. The income stated on the application is what qualifies you for the loan, so do not underestimate or substantially exceed the income you make. The amount you insert must be typical for your line of work otherwise a red flag will be raised. A federal signed 4506T tax form may be required by the lender prior to closing.
Credit & Reserves:
Borrowers generally need credit FICO scores above 700 (some lenders guidelines are 740 or above ; updated Mar 2013)
- No mortgage payments more thanr 30 days late in the past 24 months.
- No short sales, foreclosures, bankruptcies, or repossessions
- No unpaid judgments, liens, or collections. (collections of $500 or less are sometimes allowed)
Loan Programs offered on 5 & 7 year ARM's & 30 year fixed. The borrower should have a minimum of 6 to 12 months of the mortgage payment in "personal" liquid cash reserves on a purchase or refinance for the best rate. At times, lenders may request you to have 10% to 20% of stated income in Liquid Cash Reserves on large jumbo loans. Reserves can be from checking, savings, CD's, money market accounts,cash, stocks, bonds, IRA's, 401k's, and Keogh accounts.
On cash out refinances, reserves can come from the loan proceeds although the credit score may need to be higher. The other programs (30 yr and 15 yr fixed) require less reserves.
NOTE: The terms and conditions and availability change frequently on these loans. Currently, stated income loans are being provided by a select few mortgage companies and portfolio lenders in California, Washington, Arizona, New York, New Jersey, and Massachusetts with rates ranging from .50% to 2% higher than conventional rates. It just requires some extra legwork to accomplish your financial goals since it is now an uncommon program so check back often.
To get a rate quote and see what lenders have to offer, try our simple FREE Pre-Qualification process today.
Who Are Stated Income Loans Intended For?
The loan program was originally intended for self-employed professionals such as doctors, lawyers, stock brokers, realtors who have multiple expense write-offs on their tax returns that significantly reduced their gross income although their lifestyle was much higher than their adjusted gross income on their tax returns. The eligible guidelines are expanded with some lenders for borrowers who receive a salary plus cash that is not documented. A good example would be a restaurant server (waitress, waiter, bartender), caterers, shuttle & limo drivers, and similar service jobs. In addition, borrowers who regularly receive monthly rental income from occupants or travelers from a verbal agreement and nothing signed to prove the source would fit into this type of financing.
If you're a neurosurgeon, it would not be a surprise to claim that you make $40k to $50k a month. However, if you're the average neighborhood barbershop charging $10, underwriters will have a hard time believing your claim of raking in $15,000 month after month. The odds against it are very huge for that line of work. Consequently, a lot of loan applications submitted with incomes deemed to be inflated will not be approved. These are the borrowers who made the term "liar loan" before 2007 a reality when they were approved.
It's not uncommon to have a loan request rejected when the stated income figure they use does not correlate with the job title or position. Most underwriters ascertain a borrower's normal earnings based on their profession, years of experience, and job location with Salary.com.
Often, investors and people who don't want to show their tax returns inquire about stated income or no doc loans for residential financing but they exist as well on commercial property loans. So, investors can also apply for the program on a 5+ unit property too.
* NOTE: Loan programs are subject to change without notice. We are not a lender. We simply display popular loan programs that mortgage companies are utilizing in the ALT-A market.
Journal of Business and Economic Research study on No Income Verification Loans And Investor Activity.
Fed's statement on Subprime Mortgage Lending and the impending problems it creates.
Find a Commercial Mortgage without income documentaion for your cash flow generating property such as an apartment building, office building, and retail properties.