Stated income loans were very popular before the meltdown. Of course, as all things come and go, they are making their way back into the marketplace. Many blamed the financial crisis on lending institutions and their lack of concern and desire to document a borrower’s ability to repay a loan.
Today, stated income loans are available for investment properties, partly because these loans do not fall under the same amount of regulation as do owner-occupied residential loans.
Here are three things to note if you are considering using a stated income loan program:
1. Who is allowed to apply under a stated income program? These loans were originally intended for the self-employed who often don’t claim all of their gross earnings or have less actual business expenses than they report on their tax returns. Some stated programs will allow employed borrowers.
2. Will the amount stated as income on the application be verified? Some lenders will require a 4506T form which is a request to order a transcript from the IRS. This transcript shows the line item amounts for each schedule filed with previous year’s tax returns. The 4506T can be ordered by the lender and reviewed before funding the loan. They will look to see if the stated amount of income on the application is reasonable as compared to previous year’s tax return filings as shown on the transcript. Not all stated income loan programs require this.
3. Are bank statements allowed to determine qualifying income? Yes, these programs are a good alternative for business owners that would rather not provide their tax returns and want to avoid the risk of stating an amount of income on an application that may not be verified by an IRS transcript. Lenders will usually review the most recent consecutive 12 months of statements and determine the applicant’s personal income by calculating the gross deposits minus some percentage for expenses.
As always, be careful when applying for a stated income loan and make sure to discuss the pros and cons with your Loan Officer first.
So what are you waiting for? Are you ready to get started?
Brian Bush, Broker
Office: 310-817-6410 x220 | Direct: 310-601-1997