Stated Income Loans are used mainly by self-employed borrowers to qualify for a loan. The most common kind of loan that offers stated income approvals are mortgages. Self-employed people usually have trouble in proving their monthly income. For example, it is highly possible that a contractor might only be paid several large payments for work a few times a year, which will prevent him from proving a stable monthly income. Workers who earn a large amount of tips might not want to claim all their income considering the tax.
To cope with the demand for flexible loans, lenders have established a different package of guidelines for approval. These programs are now very common, and will surely become more mainstream in the future considering the fact that the jobs and the economy have been less reliable. During the subprime mortgage boom, many income programs appeared. The major part of these programs were called “liar loans,” and almost lost their credits with banks and lenders due to high foreclosure rates. In order to slow the foreclosures tide, lenders have prohibited these programs. The approval procedure for a stated income loan is now much stricter, but there are still a lot of options available to the borrower. The new guidelines emphasis on several factors: credit, assets, and collateral.
Credit is the credit score of a borrower, namely the total of a person’s credit history. Lenders look into this closely. Assets are equal to the sum of a borrower’s bank accounts, including IRAs, 401k accounts, and other tangible and liquid accounts. If you plan to apply for a stated income loan, be prepared to show your assets. Collateral is the value of the house, cars, or things that the bank will lend against.
In order to get a stated income loan, you must show the income amount you make per month on the loan application. Even though this amount does not need to be supported by documentation, you must ensure to be able to gain enough income to keep a low debt ratio. To maintain a good debt ratio, be sure your debt does not outnumber 30% of your stated monthly earnings.
Stated income loans can be granted to a borrower that fits the guidelines of a stated income lender.
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