Stated Income Loan

There are many different types of mortgage loans that homeowners will use to purchase a new home. These loans require certain information and documents in order to qualify the borrower for the loan. However, there are certain mortgage loans that don’t require information to be verified by the borrower. A stated income loan is a type of mortgage loan where the lender doesn’t ask for verification of a borrower’s information. Information like pay stubs, W2 forms, verification of employment and other financial information does not have to be verified in order to qualify for this type of mortgage loan.

All the information that is given by the borrower will be information that the lender will take as fact, without proven the information in any way. Basically, the lender will take the word of the borrower when approving them for a stated income loan. These loans are also called “liar loans” as well. Stated income loans are not called liar loans because borrower’s lie when giving information to the lender, they are called liar loans because the borrower could in fact lie on their application. The question is why stated income loans are even made available since people have the chance to lie on their application about financial information.

Stated income loans are often used by individuals who cannot prove their financial income. For example, self employed individuals do not have pay stubs like those who are employed. People who are self employed may earn their income in cash or other under the table transactions. State income loans are made available to a wide range of credit scores and credit histories. They are offered by prime lenders as well as subprime lenders. Since stated income loans don’t rely on certain information, they are at a high risk for fraud on the behalf of the borrower.

Stated income loans heavily rely on the debt-to-income ratio of the borrower. Since the borrower has the chance to lie about their income, they could conceivably qualify for the loan by giving false information pertaining to their income amount. Even though these types of mortgage loans are designed for the self employed individual that cannot prove their income, people will try to falsify financial information in order to receive a stated income loan. Stated income loans are also designed for individuals who have a complex tax schedule that makes identify the borrower’s income nearly impossible.

Since stated income loans only use the word of the borrower to qualify for the loan, the amount of risks is higher for the lender. In or order to cover these risks, the lender will charge a higher interest and premium amount on the borrower. Traditional loans that are based on documentation are typically up to .50% lower in interest than stated income loans. The borrower of a stated income loan may be required to put down a larger down payment as well. Higher interest rates, larger down payments, and higher premiums help to reduce the amount of people who are willing to lie on stated income loans.

Since the credit crunch and the housing market crash of 2008, it has become increasingly more difficult to obtain a stated income loan. The markets are imposing a significant amount of risks that lenders tend to shy away from. The interest rates and down payments for stated income loans have been rising over the past few years because of the risky market trends. However, the self employed are willing to use these types of loans when they are unable to verify their financial information to qualify for a traditional mortgage loan.