Stated income loans in 2022
Stated income loans don’t exist like they used to. No-doc mortgages went away post-2008 in favor of strict income verification rules.
But not everyone has the income documents required for a conventional mortgage. Some people need an alternative way to show they can afford a home loan.
Luckily, there are modern versions of the stated income loan to help. Options like bank statement loans, asset depletion loans, and real estate investor loans can help you get a mortgage even without traditional tax returns.
Many lenders offer these semi-stated income loans, though rates tend to be significantly higher. Find a few of them and compare rates to get the best deal on your mortgage.
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True stated income loans are gone. But you still have options
Prior to the 2008 housing market crash, an online search for “stated income mortgage” would have come back much differently than a search done today.
Dubbed “liar loans”, these high-risk mortgages — which required no income verification for borrowers — were a big contributor to the housing downturn.
As a result, most banks and lenders discontinued these no-income-verification loans.
The good news is that there are other options for homeowners and real estate investors who can’t prove their income level through tax returns.
As we explore below, all these loans will offer different rates and benefits depending on the borrower’s income, assets, and the type of real estate purchased.
Stated income mortgage alternatives
There are three popular alternatives to stated income loans today. All of these are considered to be “Non-QM” (non-qualified mortgages) since they don’t conform to conventional mortgage lending and cannot be sold to Fannie Mae or Freddie Mac. They are:
- Bank statement loans
- Asset depletion loans
- Investor cash flow loans
Keep in mind that there are variations of asset depletion loans that are qualified mortgages (QM).
Let’s dig into each option a little further.
1. Bank statement loans
The bank statement mortgage is an increasingly popular alternative to a stated income loan. It’s ideal for self-employed borrowers, small business owners, freelancers, or gig workers, who make plenty of money but their tax returns don’t show it.
Bank statement loans consider 12 to 24 months of personal and/or business bank statements. In lieu of pay stubs, some or all of these monthly deposits are used to prove your monthly income.
Bank statement loans offer down payment options as low as just 10%.
Qualifying for bank statement loans
Besides verifying the borrower’s income and assets, buyers can expect higher credit score requirements with bank statement loans.
While loan guidelines will vary by lender, anticipate the following underwriting requirements:
- Credit score requirements around 680. You may get approval with a lower score, but expect to pay higher mortgage rates
- Debt-to-income ratio between 36% to 45%. Some lenders may allow debt-to-income ratios as high as 55%, but, again, you’ll pay higher interest rates
- Bringing a larger down payment to closing. These types of loans often require more money down, and even borrowers with great credit may still need upwards of 10%
- Two years of consistent income. Most lenders will want self-employed borrowers and small business owners to provide 24 months of bank statements
2. Asset qualifier or asset depletion loans
Also known as “asset depletion loans”, “asset utilization loans” and “asset based mortgages”, this loan program is another great alternative to stated income loans. Even better, it’s not just for the self-employed.
Asset qualifying loans do not require employment verification. Borrowers do not even need to be employed. Instead, this program allows borrowers to qualify for loans using their verified liquid assets.
This makes asset depletion loans an especially popular option for retired homebuyers.
Here’s how they work.
How asset-based mortgages work
Borrowers’ assets are summed up based on a combination of cash, retirement, and investment monies. Then the lender calculates a “monthly income” based on the total. Generally, the calculation is a borrower’s total liquid assets divided by 360 (the number of months in a 30-year mortgage).
Assets are generally qualified with 100% of cash accounts and 70% of retirement and investment accounts.
For instance, a borrower might have $1,000,000 in liquid assets, and another $500,000 in retirement and/or investment funds. This gives them an asset-based “income” of $3,750 per month.
- $1,000,000 + $350,000 = $1,350,000 total assets
- $1,350,000 / 360 months = $3,750 monthly income
In addition, all assets counted for an asset depletion loan need to be sourced and seasoned. That means the source of the money can be verified, and it’s been “seasoned” in the borrower’s account for a certain amount of time.
Sourcing and seasoning requirements vary by lender. Some require a minimum of 2 months to be sourced and seasoned, while many require as many as 12 months.
Finally, asset qualifier loans typically come with slightly higher down payment requirements. Most lenders require at least 25% down.
3. Investor cash flow loans
Investor cash flow loans are designed for people who generate their income from real estate investment properties. They can use steady rent income from those units to buy or refinance new investment properties.
With this low-documentation loan program, borrowers can provide a rental analysis to determine their monthly cash flow. No employment information or personal income is required. This means you can forgo complicated income statements and tax returns.
The typical down payment requirement for investor cash flow loans is 20%.
Background: What are stated income loans?
A stated income mortgage is a home loan that requires no income verification or documentation. Hence the terms “no-doc mortgage” or “no income verification loan”.
Prior to the housing market crash in 2008, borrowers had a lineup of these programs including the stated-income stated asset loans (SISA), also known as the no income-no asset loan (NINA).
When stated income loans were commonplace, a borrower with a decent credit score could simply state their income on the loan application. And the lender would take their word for it.
In 2010, the Dodd-Frank Act transformed stated income loans for the better. Borrowers can no longer take out a mortgage loan without providing proof of their ability to repay the loan.
This protects lenders from making loans that borrowers can’t pay back. But it also protects borrowers from mortgage defaults and foreclosures.
The ability-to-repay rule is the reasonable and good faith determination most mortgage brokers and lenders are required to make that you are able to pay back the loan.
Since stated income loans require no income documentation, these loans are no longer available.
Some lenders still advertise “stated income loans”
After being gone for many years, stated income loans are slowly making a comeback. However, today’s “no-doc mortgage” differs from the risky loan products that existed pre-subprime mortgage crisis.
A true stated income loan is only available for non-occupying real estate investors looking for short-term financing on investment properties. These loans are akin to hard money loans.
For all other stated income programs, you will need to prove your income.
But you don’t have to do so through tax returns. As described above, “income” can also be calculated via bank statements or liquid assets. This makes it possible to qualify for a home loan with all sorts of “non-traditional” income. Self-employed people, contractors, gig workers, retirees, and full-time investors all have mortgage options today.
These new stated income mortgage loans are often referred to as “Non-Qualifying mortgage loans”, “alt doc” loans, or “alternative income verification” loans.
With these mortgages, you are not just merely stating your income. Rather, you are using an alternative means to verify your income.
Think you need a stated income loan?
How do you decide between a standard mortgage and an alternative-income mortgage?
First, remember that these loans are designed for folks who can’t prove employment and/or income via traditional methods. As such, these programs are considered higher risk.
To offset the additional risk, these mortgage loans typically come with higher interest rates and bigger down payment requirements than traditional mortgages.
But for homeowners that wouldn’t be able to qualify for a standard home loan, these programs can be an ideal solution.
Explore your loan options and rates today. You can get started right here.
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