Stated Income Home Loans

A stated income loan is a low documentation type of home loan. This type of loan relies on a borrower’s stated monthly income to qualify for the loan versus a borrower having to prove their monthly income by showing yearly tax returns or paycheck stubs to qualify.

This simplified method of qualifying for a home loan, initially meant for self-employed borrowers whose monthly income varies from month to month. The reasoning behind this was that self-employed borrowers, real estate agents, entrepreneurs, while being able to qualify based on their yearly income often could not qualify for a mortgage based on the strength of their last two monthly pay-stubs.

This documentation type has recently had a surge in popularity because borrowers find it much easier to qualify for a loan by stating their income instead of having to prove it.

Stated income home loans work just like full documentation home loans. The borrower must be able to qualify for the loan. Whereas with a full documentation loan a borrower is required to prove their monthly income by providing 1099s, check-stubs or yearly tax returns to qualify for the loan the stated income home loans allow the borrowers to state their income and or assets and the lender will not ask for proof.

There are two types of stated income home loans. The first is the Stated Income Verified Assets, or SIVA documentation type. The second is the Stated Income Stated Assets, or SISA, documentation type.

• A Stated/Verified loan, or stated income verified asset loan, lets a borrower state their monthly income on their loan app. The lender then requires verification of a borrower’s assets; a borrower will need to prove their assets by supplying seasoned (meaning the money has been in the bank for at least three months) bank statements showing at least three months of the proposed mortgage payments. Some lenders look for six months of seasoned assets depending on the size of the loan. Verified assets are sometimes called reserves.
• A Stated/Stated loan, or state income stated asset loan, lets a borrower to state both their monthly income and their assets. In the case of a SISA, both items are merely stated, and the lender will not ask a borrower to verify the income or the assets.

Be warned, the lender will verify a borrower’s employment. The lender will call to verify the employment of a salaried borrower and will need a CPA letter to verify the employment of a self-employed borrower. This is an important part of qualifying for a stated income home loan; the lender determines how much the borrower makes in part by using the borrower’s job title. It is common to see an underwriter decline a loan because the borrower has overstated their income. For example it is believable for a doctor to make $25,000 a month and it is not believable for a police officer to make $10,000 a month.

Due to the recent credit crisis, stated income loans are becoming less common. A borrower may find the option only available with a larger down payment.