The stated income refinance loan lost its power during the first few years after the housing crisis. Lenders were too afraid to offer anything but purely mainstream loans for fear of borrowers defaulting on their loans. After the release of the Qualified Mortgage Guidelines, borrowers got even stricter with what they would offer borrowers. No one wanted to be accused of providing loans that were not “Qualified” according to the new guidelines. Fast forward a few years and banks have loosened up their guidelines. Not every bank offers stated income loans today, but many do offer it because there was such a large untapped market sitting without the ability to obtain a mortgage. If you need to refinance and do not have standard qualifying factors, a stated income loan could be the way to go in order to refinance your loan.
How to Apply for the Stated Income Refinance Loan
Applying for the stated income refinance loan works the same way as applying for any other loan program. Just because you are not verifying your income in the traditional manner does not mean that you do not disclose your income at all. In order to apply you do the following:
- Find a lender or lenders you want to apply with (it is best to shop around)
- Fill out a mortgage application
- Disclose all of your personal identifying information (name, address, social security number, etc.)
- Disclose your place of employment, source of income, amount of income and length of employment
- Disclose the amount of your assets and where they are held (sources)
- Disclose your current debts
Once you complete the application and sign a statement allowing the lender to pull your credit, the process begins. The lender will look at all of the information you provided as well as your credit report to determine if you meet the preliminary requirements for the stated income loan.
Moving Forward with the Loan
If the lender prequalifies you for the loan, you can move forward with your refinance. Once you choose the lender with the best terms and closing costs, you provide them with the verification of the items you stated above. This means you will provide the lender with:
- Bank statements for the last 12 months to prove your income (stated income does not mean that you do not verify it today, you just verify it in an alternative fashion)
- Contact information for your employer to verify your employment
- Proof of any assets that are not a part of the bank statements you provide for income verification
- Proof of any debts that you need to provide, especially if you recently paid any off that the credit report does not yet reflect
Securing the Appraisal
Another step in the Stated Income Refinance Loan is securing the appraisal. The lender needs to determine that your home has the value you claim it has or even the value that an automated computer system provides. Just because a program assigns a value to your home does not mean that is the actual value. The appraiser needs to determine the condition and status of the home and make any adjustments for any improvements you made to the home. This is done with an in-person visit to the interior and exterior of your home. The appraisal plays an integral part of the stated income loan process because the lower your LTV, the easier it is to get approved for the stated income loan.
Closing on the Loan
Once the underwriter has all of the documents necessary to verify your information and the appraiser finishes the appraisal, the loan will be clear to close. At the closing, the closer disburses the funds to the necessary parties including your current lender, any third parties involved in the loan process, and yourself if you receive any cash from the proceeds of the loan.
Watch the Payments
One thing you need to concern yourself with on the Stated Income Refinance Loan is the payments you agree to pay. Stated income loans usually have slightly higher interest rates and costs to do the loan. The lender takes a large risk in offering this loan type to you, so they need to make up for the risk by charging you more for the loan. This enables them to provide risky loans that they would otherwise be unwilling to offer.
In general, the Stated Income Refinance Loan works the same way as any other loan. The only exception is how you verify your income. The alternative documents give you more leeway when it comes to verifying your income and getting approved for the loan. The lender will still need to verify your employment and any other aspects of the loan in the same manner as a fully documented loan. Most lenders are not willing to take any more risks than necessary. If they offer a stated income loan, they will require full documentation of every other factor of your loan to ensure its validity and to lower the risk they take in offering you a loan.