What Is A Stated Income Mortgage Loan?

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It really can be true. You can tell your lender what your monthly income is without proof and suddenly you’re the proud owner of a stated income mortgage loan.

Too good to be true you say. Not for those with good credit. Essentially, what happens is that you end up paying slightly higher mortgage loan rate in exchange for not having to prove your income.

It was in late 2003, near the end of the refinancing boom lenders started offering what is known as a stated income mortgage loan. This type of mortgage loan was the result of credit scores being a solid indicator of whether or not, a borrower would pay back a loan.

Lenders came to the realization that offering a stated income mortgage loan to those with a good financial track record may not be as risky as it sounds.
Times have changed, employment patterns and demographics show what more and more people can actually benefit from this type of loan. Today, an increasing number of people are without steady paychecks and would have difficulty documenting their income.

Good contenders for a stated income mortgage loan include small business owners, salespeople who work on commission and independent contractors.

A stated income mortgage loan could also be beneficial to those who’ve been out of work and are starting new jobs. Or, simply for those who don’t wish to provide the income documentation required for a conventional mortgage loan.

It’s difficult to obtain a conventional mortgage if you’ve just started a new job after a year or two of being unemployed. A stated income mortgage loan on the other hand, makes the process possible and gives you the opportunity to acquire a mortgage when you would of otherwise been denied due to lack of steady employment.

The advantage of a stated income mortgage loan is your lender takes your income at your word. At the very most, lenders may verify that the borrower is employed and/or that their reported income is realistic based on industry averages for their particular occupation.

The mortgage loan rate for this type of program is usually just an eighth to a quarter point higher than for conventional loans.

A stated income mortgage loan falls under the alternative loan category. In the industry this type of mortgage loan is often referred to as an ‘Alt-A’ loan. The ‘Alt’ standing for alternative and the ‘A’ referring to an excellent credit rating.

To qualify for a stated income mortgage loan borrowers need to have a mid to high FICO credit score in or around the 600 range. (FICO is a credit risk assessment system developed by the Fair Isaac Corporation.) Borrowers are rated on a scale between 300 and 850 points.

Finally, to get the best mortgage loan rate possible, a stated income mortgage loan requires you to have a down payment or equity of at least 20 percent of the property’s value.

While it’s possible to get a stated income mortgage loan with as little as five percent down, you’ll end up paying more for your mortgage loan in the long run.