Stated Income Loans Explained
If you’ve been considering applying for a loan, you may feel like it’s almost an impossible feat. After all, the lender wants to know you can be trusted to repay what you borrow. It would be nice if they could just take your word for it.
This was possible at one point. The stated income allowed a borrower to apply for a loan without having proof of income. In theory, this sounds great. However, it led to some pretty serious consequences.
Below, we’ll explain more about stated income home loans, the target borrower, and how they’re still in use today.
What Are They?
A stated income home loan is a loan that is unique due to the relaxed regulations. A lender did not need to verify or ask for proof of income. Instead, they were only required to ask the borrowers “stated income”.
This caused these loans to be known as “liar loans.” This describes a mortgage/home loan that doesn’t require documentation. The provider of the loan simply underwrites the loan based on the information supplied by the borrower.
Understandably, in today’s economy, stated income loans seem risky. However, these loans helped self-employed borrowers with a variable income. They were unable to provide the documentation required for a conventional loan. Instead of documentation, these loans depend on credit scores.
Can I Still Get a Stated Income Mortgage?
These loans were popular in the early 2000s. However, the relaxed approval methods led to the 2008 collapse of the housing market. A borrower would apply for the loan and write out their income. This led to mortgages being defaulted on since lenders didn’t require documentation to verify the information. Ultimately, since borrowers were unable to keep up with the payment: foreclosure.
In 2010, the Dodd-Frank Wall Street Reform and the Consumer Protection Act were put into effect. This stated that borrowers of owner-occupied properties were unable to take out stated income loans. However, they are still available for investors that are looking to purchase a property.
In addition, these acts led to the reform of stated income loans. At this time, if you need to fund an owner-occupied property, there are other options through your bank statement loans.
Though stated income loans are not available for self-employed home buyers at this time. There are still opportunities out there for financing your purchase. Make sure that you take the time to contact Masters Commercial Capital Group to find out more about your options.