The housing crisis is behind us and more lenders are willing to provide a stated income loan. How do you know which lenders are good and which are not? What’s the best way to shop for this loan?
This guide will help point you in the right direction.
What is a Stated Income Loan?
First, let’s look at today’s stated income loan. It’s not the same one from 10 years ago. Before you could literally state your income and assets and get a loan for as much as 100% of the property value. Today, that’s not possible. While lenders may call the loans ‘stated,’ they are actually alternative documentation loans.
This means that borrowers can prove their income in an ‘alternate’ way. While you cannot just state it, you can provide something other than paystubs, W-2s, and tax returns. The most common document provided is the bank statement.
With your bank statements, you can prove regular deposits from the income that you state. Lenders don’t have to prove your income with paystubs or tax returns – they can see it right on your bank statements.
Of course, this comes at a price. It’s risky for lenders to go this alternate route mostly because they cannot sell the loan to Fannie Mae or Freddie Mac. Most lenders will keep the loans on their own books. This means they set the requirements, some of which may be different than your standard loan.
Shopping for a Stated Income Loan
Once you are ready to shop for a stated income loan, you’ll want to look for the following:
You want a lender that has been through the ups and downs of stated income loans. This is a whole new era of non-conforming loans. The last thing you want is a lender that has never gone through the process. You’ll only end up with hiccups and disasters along the way. Choosing a lender that has already done many stated loans throughout the last few years will generally yield the best results.
Just because you need a non-conforming loan doesn’t mean you have to pay ridiculous interest rates. You can still shop around for the best rate. Remember, you should do this within a short time span – usually 3 or 4 weeks. This way your credit isn’t hit with too many inquiries, causing your credit score to drop. As you shop around, make sure you let the lenders know that you are comparison shopping. This way they will give you the lowest rate they can possibly give in order to win your business.
Just like you want low interest rates, you also want low closing costs. You can negotiate these, but you can also shop around with various lenders. Your closing costs have an impact on the total cost of your loan. It affects your APR or annual percentage rate. The lower the APR, the less the loan costs you over its entirety. Finding the perfect balance between a decent interest rate and good closing costs is the ideal situation for someone looking for a stated income loan.
Keep in mind, when you take a stated income loan, it’s not regulated under the Qualified Mortgage Rules. In other words, there’s less regulation surrounding them. This means more terms that you may not be used to seeing. Before you jump on board, make sure you have a full understanding of how the loan works.
If you are unsure, talk to the lender. If they are unwilling to explain the full impact of the terms, move onto another lender. Ideally, you want a loan with a fixed interest rate and no more than a 30-year term. Of course, your personal factors will play a role in what you take. For example, if you can afford a 15-year term, you will be better off in the end. You will pay less interest and own your home a lot faster. Of course, you’ll need to prove that you can afford the higher payment first.
Shopping for a stated income lender takes a little legwork and plenty of comparisons. Make sure you compare apples-to-apples too. Don’t compare a 30-year term to a 15-year term – they are two completely different mortgages. Ask lenders for quotes for both types of mortgages you think you might be able to take on and then decide from there.
The most important thing for you to do is take your time. Don’t rush into a mortgage as it’s one of the largest decisions you will ever make.