The stated income loan has become somewhat of an elusive mortgage program that streamlines the process. If you are self-employed and do not have a traditional income with W-2s and pay stubs, you may wonder if you can get a mortgage this year. Yes, there are alternative loan options for self-employed professionals to get a home loan without traditional proof of income. These are known as stated income mortgages. But the rules for stated income loans have changed a lot since the housing crash of 2008. In most cases, you do need to provide some kind proof of your income, but there is flexibility in how you do that. Continue reading to learn everything about getting a stated income mortgage.
What Is a Stated Income Loan?
In the past, a stated income loan was a mortgage that did not need income verification or documentation. Lenders only needed to obtain whatever the borrower stated their income was at the time of loan application. But these loans were risky and helped to crash the housing market at the end of George W. Bush’s second term. Lenders stopped issuing stated income mortgages for years as a result.
The 2010 Dodd-Frank Act overhauled stated income mortgages for the better. Today, a borrower cannot get a home loan without offering proof of their ability to repay. Lenders must document this proof. Borrowers must submit documentation proving their income.
However, stated income mortgages do offer more flexibility in how to prove your income. Unlike a conventional mortgage, you do not necessarily need to provide tax returns or pay stubs to prove your income. This flexibility is why stated income mortgages remain popular with many self-employed borrowers.
How to Get a Stated Income Mortgage
Each lender has different requirements, but you can expect to see requirements similar to these:
- Two years of stable work history in your company. Some lenders may accept two years of work experience related to the industry.
- Lower debt-to-income ratios can vary by lender.
- Down-payments tend to be higher, with at least 20% common. One common lender requires 30% down.
- Higher credit scores are needed of 680 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.
Stated Income Loans Have Changed
Stated income loans have changed but options still exist. Please talk to loan officers about available stated income loans and no-doc mortgage opportunities this year.
Bank Statement Loan
There are other options out there if you have income but no tax returns, W-2’s, or pay stubs to qualify for a traditional loan.
One of them is a bank statement loan. Just as it sounds, this loan allows you to qualify for a mortgage by presenting bank statements. Bank statement loans are often used by people in the following professions:
- Small business owners
- Freelance employees
- Sole proprietors
- Gig economy workers
- Independent contractors
To qualify for a bank statement loan, you can provide the lender with approximately 12 months of bank statements that show regular deposits. The lender uses this information to determine how much you can afford to borrow.
The lender verifies the bank statements by calling the bank or completing verification of deposit request (VOD) and sending it to the bank. The lender still needs to see the expenses from your business but will not penalize you for expenses that you have written off your taxes. Learn more about bank statement mortgages.
Asset Qualification Loan
An asset-based home loan is one that uses your assets as collateral rather than income. These loans might be appropriate for retirees with a small, fixed income but a lot of assets. They also can be a good option for investors and self-employed borrowers with assets on-hand.
With stated income loans, you borrow money against your assets. The amount that you are allowed for your loan, called the borrowing base, is set based on a percentage of your assets’ value. An asset qualification loan allows you to use 70% of what you have in retirement and investment accounts and 100% of liquid assets, such as the value of your bank accounts.
To determine your qualifying amount, it is necessary to determine the maximum monthly loan payment. For instance, you could have $600,000 in liquid assets and a total monthly loan payment of $10,000. As you have 60 months’ worth of assets, you would be able to qualify according to the ability to repay requirements.
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
Do You Need Stated Income Loans?
You may be a good candidate for a no-income verification or bank statement loan in these cases:
- You have a lot of business write-offs for the last two years.
- Income dropped recently.
- You file several tax returns.
- You have irregular income, such as commissions from real estate work.
- You are a real estate investor.
- You have a high net worth but no job.
Frequently Asked Questions
Below are some of the most frequently asked questions about stated income and related mortgages.
Q: Are No-Income Verification Mortgages Safe?
A: 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.
Q: Are Stated Income Loans Available?
A: 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.
Q: Are There No Income Verification Mortgages?
A: 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.
Q: How Do I Qualify for Stated Income Loans?
A: A borrower needs a credit score of 680 or higher, cash reserves, and bank statements that show enough cash flow to pay the loan. A higher down payment could be required to some lenders. No doc HELOCs and no income equity loans are more difficult to find unless you have very good credit scores and significant equity.
Q: Are Stated Income Loans Illegal?
A: Old-fashioned stated income loans where you provided no proof of income at all are illegal. Today’s stated income loans require proof of income, but you can use bank and financial statements to prove your ability to repay.
Q: How Can I Buy A House Without Proof of Income?
A: You cannot buy a house without proof of income. Today’s stated income loans still require you to prove your income, but you can do so with bank statements rather than traditional documentation, such as W-2s, pay stubs, and tax returns.
Q: How Is a Stated Income Loan Different From a Traditional Mortgage?
A stated income loan is different 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.
Q: Are NINJA Loans Back?
A: NINJA loans, which stands for no income, no job, and no assets, have disappeared from the market. These were high-risk loans popular before the 2008 housing crash. Today, you can get a stated income loan, but you must show proof of income with bank statements or financial records.
A Brief History on Stated Income Loan & No-Doc Mortgages
If you ask a financial expert, no-doc mortgages were a big culprit of the financial crisis in 2008, which ultimately led to the Great Recession. According to Oxford Academic’s Review of Finance, complex-mortgage borrowers — including those with no-doc loans — were delinquent on their mortgages at rates twice as high as borrowers with regular fixed-rate contracts.
Essentially, these loans worked by having applicants simply state their income rather than having it verified (earning the moniker “liar loans”). It’s the reason why no-doc loans have also been referred to as “stated-income loans.” Their popularity surged as lenders relaxed underwriting standards and real estate prices surged, inevitably leading homebuyers to believe home values would continue to rise indefinitely. Obviously, that wasn’t the case with stated income loans as they became less and less popular.
Who was hurt the most in this scenario? Folks whose income and assets are often less stringently documented, including the seasonally employed, the self-employed, and independent contractors who used to take advantage of these stated income loans.
As mortgage defaults skyrocketed and lenders tightened the belt, no-doc loans as we knew them began to quickly disappear.
The Types of Stated Income Loans
While no-doc mortgage loans are much harder to get, Fox Business says they haven’t disappeared entirely. Instead, they’re more commonly referenced as a mortgage with “alternative methods” for determining income.
There are four main variations of no-doc mortgage loans, and they included:
- SISA – Stated-income or Stated-Asset loans, which were the most popular no-doc loans. They were made without any formal verification of a borrower’s income.
- SIVA – Stated-income, Verified-Assets loans. Typically, applicants made a list of their assets for lenders used as the basis for loan approval. These have also been termed “bank statement loans.”
- NIVA – No-Income, Verified-Assets loans were used for applicants whose income could not be verified.
- NINA – No-Income, No-Asset loans have the fewest requirements of all and were meant for applicants who could not prove either income or existing assets.
Today, no-doc mortgage loans might be an option only if you’re talking to lenders who aren’t held to qualified mortgage rules by government agencies (such as Fannie Mae or Freddie Mac). That means potential homebuyers will have to approach direct lenders, wholesale lenders, and large financial investment firms to potentially lock-in this type of loan.
What is The Maximum Debt to Income Ratio for a Stated Income Mortgage
People who want a mortgage need to meet various qualifications, including credit score, income, and debt-to-income ratio. Most people focus on income and FICO score, but having a low DTI can be the deciding factor in whether you qualify for a no income mortgage or any mortgage, for that matter.
A low DTI shows that you have a reasonable balance between debt and income. For example, if you have a DTI of 20%, this means that 20% of your gross monthly income goes to service debt.
On the other hand, if you have a DTI of 45%, this means 45% of your monthly income is paying debt, which some lenders will see as too high for loan approval.
Most borrowers for a no-income mortgage with a low DTI are more likely to manage their debt payments more effectively than someone with a high DTI. This is why most no-income mortgage lenders want to see a DTI that fits in their parameters before loan approval.
This makes sense; the lender wants to be sure the borrower isn’t overextended. This is doubly the case with no-income mortgages where the borrower doesn’t have the same proof of income as someone getting a conventional mortgage.
How high of a DTI you can have to be approved for a no-income mortgage depends on the lender. However, many lenders say the highest DTI you can have and be approved for a home loan is 43%.
However, most lenders want to see a lower DTI under 36% if possible. Borrowers with a lower DTI will qualify for the best interest rates and lowest down payments.
Lenders also like to see that the borrow is paying no more than 28% of their gross monthly income for their mortgage payment.
If your DTI is too high for one lender, there are several options. First, try to lower your debt-to-income ratio. This can be done by paying off as much debt as you can before applying for a mortgage.
Second, try to increase your income or add another borrower on the application. Another option if your DTI is too high is to simply look for another lender. Some lenders will allow you to have a higher DTI than others.
The last option is to put more money down; some loan providers will ok the mortgage with a high DTI if you have a higher down payment. Remember, you usually should have a DTI of no more than 43% if you want to be approved for a no-income mortgage. But check with your lender because their standards may differ.
Stated Income Loan Summary
Stated income mortgages are a good way for borrowers in non-traditional forms of employment to get a home loan. Stated income mortgages are a good choice for borrowers who cannot prove their income with tax records, W-2s, and pay stubs. Talk to your lender today to see if a stated income mortgage is a good fit for your financial needs.