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Are Stated Income Loans Illegal?

Are Stated Income Loans Illegal?

Are stated income loans illegal? One of the many causes of the phenomenon known as the “housing bubble”, (1) was the stated income loans (2). To deal with the collapse of the housing market, the Obama Administration passed the Dodd-Frank Act (3) which prohibited the institute of the aforementioned loans where the condition of eligibility for the borrower was the formal declaration of his will and ability to pay the contractual obligation (4). However, some years ago, this Act was partially dismantled (8) by the S.2155 (5) that rolled back a good part of it (6) without actually repealing it (9),  because of the severe problems it was generating to our country (7). As a consequence thereof, we can say that stated income loans are back, but with variations that we will explain easily based on the new reforms (10).

So today, after these reforms and rollbacks, are stated income loans illegal?

Stated income loans are illegal now only for owner-occupied properties after the Dodd-Frank financial reform was passed in 2010. Therefore, they are legal for real estate investment because in these cases, the borrowers are not purchasing owner occupied property.

Thus, it is now illegal for any prospective borrower to obtain a stated income mortgage loan for an owner-occupant property. However, they are allowed in the case of borrowers purchasing a real estate object for investment purposes that will not be occupied.

Today, stated income loans require proof of income, but you can use bank and financial statements to prove your ability to pay.

You cannot buy a house for living without proof of income, as this is prohibited now. Today’s stated income mortgage still requires you to prove your income, but you can do so with bank statements rather than traditional documentation, such as W-2s, pay stubs, and tax returns. We discussed in another article, how is the situation in California regarding the non-QM market in this article.

 They come in various names (e.g. “no-doc”, “low doc”, “SISA”, etc.) Depending on the state, current regulations, and even to the extent of the uniqueness of a population’s needs, stated income loans can be quite flexible, thus offering a viable choice for those with equally unique financing needs.

What Legislation Made Stated Income Loans Illegal?

The legislation that made stated income loans illegal was the Dodd-Frank Act, partially rolled back in 2018 during the Trump Administration.

Conclusions

The recommendation is to prepare a range of bank statements covering not less than a timeframe of six months 

ITIN Mortgage Loans

ITIN Mortgage Loans

ITIN mortgage loans are non-conventional loans (2) for foreign individuals who are not eligible for an SSN registration (3) and only possess an ITIN as their tax processing identification (1).

The Social Security Numbers are identification codes (6) issued to eligible foreigners (5) and US citizens (4). Unqualified aliens with ineligibility to become beneficiary of an SSN (10), may submit with the Internal Revenue Service the form W-7 (8) to be provided with an Individual Taxpayer Identification Number or ITIN (9)

An ITIN mortgage loan is a type of non-qualified mortgage where the potential borrower identifies himself with an ITIN tax processing registration as proof of his identity without the exhibition of a Social Security Number.

The individual who bears an ITIN as his tax processing identification number can qualify to become the borrower of a mortgage loan (7).

A person without an SSN can be the beneficiary of a mortgage loan and become a homeowner afterwards. As proof of his identity and his ties with the country, he must have at least an individual taxpayer identification number, known as ITIN. ITIN was created by the Internal Revenue Service

These ITIN Mortgage loans are regarded as non-conventional loans. Thus, the potential borrower has to address subprime lenders, private, and non-conventional lenders in order to obtain a mortgage loan.

So we can define here, that the ITIN mortgage loans are envisaged for taxpayers that are potential borrowers and because of their resident status do not possess a Social Security Number. Despite their ineligibility for the aforementioned document, this subject may submit their ITIN to qualify for a loan in general, or for a mortgage loan in particular.

The IRS is interested in enforcing the Internal Revenue Code.

There are rules of confidentiality that protect the ITIN registered persons against immigration enforcement.

The Internal Revenue Code in its number 6103 absolutely forbids the disclosure of taxpayer information, as a general principle.

The ITIN numbers that are issued by the Internal Revenue Service for any taxpayer who is not eligible to obtain a Social Security number.

And who are these individuals that are not eligible for a Social Security number but may obtain an individual taxpayer identification number?

First, we have the most common case that are immigrants that are not authorized by law to remain in the United States.

Another case, becoming more common, are the individuals that are lawfully present in our country. For example, Europeans can stay up to six months with their electronic visa, and during that time they decide for example to pay taxes in the United States for whatever reason. They are here for a business and then in order to engage in these activities, they require this individual taxpayer identification number.

Therefore, this status of a potential borrower who is in the US and requires to pay taxes, and cannot be eligible for a Social Security Number is very well known by the lenders. There are many lenders who are looking for potential borrowers in this aforementioned status and do business with them period so if you are in this situation just know that there are lenders of non-conventional loans interested in your profile.

Which disregard of the residence status of the taxpayer, the Internal Revenue Service requires every subject who is earning income in our country to report it. Likewise, they do not share that information with the Department of Homeland Security.

Pros And Cons Of The ITIN Mortgage Loans

Pros

  • A mortgage payment can be deducted from the income tax.
  • You can utilize gift funds to assist with the initial down payment.
  • The rates can be better than the stated income loans and the “hard money” loans. However, bear in mind that as this is a non-conventional mortgage loan. You will have higher interest rates than the ones you have in a USDA, VA, or FHA loan. Talk about this with the lender because if you are going to do some down payment if you have a decent credit score and the loan amount is not so large, the lenders will be able to sit to negotiate this with you.
  • It is not necessary for the prospective borrower to prove that he is a legal resident in the United States. He just only requires this individual tax identification number (ITIN) which is provided to all foreigners that are not eligible for the Social Security Number. Therefore these potential borrowers can own a home in the United States too.

Cons

  • Not many lenders available. There are many lenders who do not offer ITIN mortgage loans and just concentrate on conventional loans. However, if you feel a very simple form with us we put you in contact with lenders who are exactly looking for prospective borrowers who have a profile similar to yours.
  • The rates are higher than with conventional products like FHA loans or VA loans. This is quite normal and applies to other subprime products like stated income loans, or no-doc loans. There is a lot of competition in the non-conventional mortgage loans market, so do not expect very high rates anyway.
  • Likewise, down payment requirements are higher. Please note, that the lender here will look at, generally speaking, your ability to pay and he will pay attention to your credit score the amount of the loan, and the possible down payment that you can tender.

Requirements for an ITIN Mortgage loan

The requirements that we will study now below are the usual requirements that we see in the housing market for loans of this kind. However, I will suggest that you complete a form with us where you will be contacted by many lenders and you can negotiate with them the conditions.

The advantage that we have many different lenders to contact you is very important. There is a competition between them. This competition will help you to negotiate easier with them the conditions of the future covenant that would favor you the most. Now let’s see the average requirements that we are seeing in the housing market right below

  • The credit score of the borrower must be higher than for a conventional loan. Therefore, this means that if you require one of these loans it will be higher than what you can expect to pay for an FHA loan or a USDA loan. This is quite normal.
  • It is required a down payment of, generally speaking, at least 12% and this depends on your credit score and the loan amount that you are requesting. Here this depends on what you can arrange with your lender but what I see, is the market asking for up to 20% of down payment.
  • Debt-to-income ratio is usually at an average of 45%
  • In the case of freelancers, they can provide a 1099 form. This is the form used for miscellaneous income and it is submitted to the Internal Revenue Service. With this ITIN number the taxpayer should have filed at least one year and a half of tax declarations.
  • if you are a freelance contractor, or you are a person who is self-employed, you can present bank statements of a range of about a one-year timeframe. Instead, if you require a mortgage for a property object that you will not occupy, you can also have access in this case to a stated income loan. This, like many other requirements, should be discussed with your potential lender where you will see which conditions are the most advantageous for you.
  • Similar to what we explained before, you have to furnish the lender pay stubs for about three months.

Other Factors That Can Help You As A Borrower

These ITIN mortgage loans are not conventional loans. You do not have a Social Security Number and most probably you do not have a yet constructed a reasonably good credit score. So you have to find other ways to build confidence in the lenders and show them that you have the ability to pay.

Therefore, I would suggest you pay attention to the following situations that you can improve to show the lenders this ability-to-pay that you have.

  • Evidence of payments done to service providers: I am sure that you have payments done to the Internet company, cell phone company, maybe insurance for a car, and for sure utilities that you have paid. Furnish these pieces of evidence to the prospective lender so you can exhibit him that you are doing payments on time always. A statement from the utility company that your account does not have any outstanding payments is also a good idea.
  • Work experience: if you don’t have a Social Security Number, probably you did not have any employment registered. However, you probably have payments received acting as a contractor. Likewise, if you are a freelancer you can have this, or payments done to you by customers if you are a self-employed person. The more you can have of these pieces of evidence of the stability and ability to pay, the better. This will help you to demonstrate that you have a steady source of income.
  • Bank statements: Prepare to have bank statements from a timeframe of at least six months at hand. Keep these statements and be ready to collect at least six months. But if you have more than six months much better. In fact, the majority of the ITIN mortgage lenders would request you more than six months. As you can imagine, the more you have the better.
  • Cash reserves: The bank statements described above should show that you have good cash reserves. Therefore, I would suggest you keep that bank account with money. In each monthly bank statement, it will appear that you always have money as cash reserve.
  • Credit cards: It is possible, that at this moment you do not have any credit score, and therefore, you do not have credit cards at all. However, you should obtain a secured credit card. This secured credit card will have an APR that is much higher than normal rewards credit cards or conventional credit cards. That does not matter to you in your global strategy. With this secured credit card, you will be able to build a credit score with time. So in this case, make some purchases per month, show that you are using the card, and then at the end of the month even if you have the option to pay just a part of the balance, pay the whole balance completely. Close the month for that secured credit card. This will help you to improve rapidly your credit score and would make a lender or an underwriter quite comfortable about your ability to pay.

Types of Property Objects That Usually Qualify For An ITIN Mortgage Loan.

  • Residential buildings with not more than four units. More than 4 units will increment considerably the risk for this lender, so what we see is that lenders would limit to residential buildings up to four units.
  • Condos and single-family homes: These are the most common property types that we see. In this case is, the most common situation is that the borrower will purchase this property object as his principal residence. As we explained before it is possible also to acquire a property through the system just for investment.

Conclusions

ITIN mortgage loans are a very good options for all foreigners without a SSN, provided that they have a decent credit score, several months of bank statements and the ability to perform a downpayment of at least about twelve percent.

The interest rate, despite being a non-conventional mortgage, is not as high as with hard money loans or stated income mortgage loans, however, it is not as low as a VA loan or a USDA loan.

We have in the market right now very decent interest rates because of the severe competition between these sub-prime lenders.

I will suggest you that you have handy your ITIN registration and a credit score of not less than 550, that you can build gradually using secured credit cards. You should have a cash reserve in your account for several months, prepare a down payment, and be able to show more than one year of history as a self-employed or freelance contractor.

I suggest you complete a form here below with some basic information. Then you will have ITIN lenders contacting you. You can decide later on which is more suitable for you according to the requirements discussed with them.

itin mortgage loans

Stated Income Loans In California

Stated Income Loans For California

After the Dodd-Frank legislation piece was passed more than a decade ago (3), stated income loans initially disappeared (5) as they were partly blamed for the collapse of the housing market (1). Some years ago, the Trump Administration passed the S. 2155 (7) that even when it did not repeal (10) the Dodd-Frank Act (9) or the relevant chapter of the USC (6), it rolled back several of its prohibitions (8). This allowed stated income loans for California to return (4) with some modifications (2) as we will see now.

So today, after this new legislation, what are actually the stated income loans for California?

Stated income loans for California are a variant of loan contracts where the prospective borrower demonstrates his ability to pay with bank statements or other alternative documents at the request of the lender. Californian borrowers can become eligible for a stated income loan without providing W-2 forms, and are only required to submit bank statements issued by his financial institution.

Situation For California

These stated income loans are especially convenient for borrowers in California. The reason is unique in the US. There are many lenders in California that would accept a borrower who cannot offer much than his bank statements and would not qualify for a conventional loan. Heavy competition among lenders is making the requirements easier for prospective borrowers.

There are many consultants in California who work in Silicon Valley. Many of these, acquire their properties through stated income mortgage loans.

These are freelancers, self-employed consultants that work as enterprise architects, ERP consultants, developers, or project team leads. They have massive tax deductions. Therefore, they have a very low adjusted gross income (AGI). With this low AGI, they receive little attention from lenders of conventional loans.

Lenders in California got back on their feet quite rapidly and targeting the large chunk of the market that cannot be catered by conventional lenders, and was originated by these consultants and start-ups related to technology as well.

Requirements To Obtain Stated Income Loans In California

Normally, lenders of conventional loans in California, sell the loan to Fannie Mae, who normally purchases home mortgage loans from commercial banks, or big banks or to Freddie Mac, who on their side, purchases home mortgage loans from smaller banks and lenders. With this operation, they gain liquidity to provide more loans.

However, these stated income loans cannot be sold to these agencies. Therefore, the lender has to be stricter with the requirements.

  • Relevant proof of income. In California, the stated income loans require a range of bank statements of at least six months, and typically we see that lenders and underwriters request 2 years of bank statements.
  • Interests are higher, up to two percent of the normal rates. In California, there is much more competition among subprime lenders. Therefore, we will see a rate that is just one percent higher.
  • Credit scores of at least 650. Normally they are requesting 680 of credit score. This is a very trustable algorithm so non-conventional lenders are requesting here higher scores to cover themselves. 
  • A timeframe of about six months with cash reserves evidenced by documents issued by financial institutions. This requirement varies a lot by the lender.
  • Very low debt-to-income ratio. We are seeing about seventy percent requirement.

Who Can Benefit?

Among others, stated income loans benefit the following individuals:

  • Self-employed people who work as consultants, developers, and those who work in IT in California as freelancers. They have deducted so many expenses from taxes that their demonstrable monthly income looks very low in the papers but have the required ability-to-pay.
  • Self-employed who own a small business that goes well but where they cannot evidence tax returns or earnings. However, they possess bank statements that cover a timeframe of preferably more than one year.
  • Highly commissioned people who may have a low base salary but make most of their income on commissions or tips.
  • People who cannot document at least 2 years of income at their current income levels, but just one or even less.
  • People who make plenty of money but however, do not want to disclose their income for one reason or another.

Conclusions

Stated income loans for California are advantageous because there are so many non-conventional lenders that are competing for these loans that have turned the requirements down and made them easier to access for the potential borrowers.

If you are considering financing under the stated income loan program, make sure to take advantage of the variety and be patient in shopping. Guidelines may vary greatly.

Just a few years ago, stated income loans were very popular and there were plenty of stated income lenders who had flexible guidelines and low stated income rates.

Then the housing crisis hit and lenders began pulling their stated income mortgage programs. As lenders ceased offering stated income loans, many small business owners and other individuals found it difficult to get the financing they need because of their unique income situations that cannot be met by conventional loans.

stated income loans california

Stated Income Loans

Stated Income Loans

Stated income loans for mortgages were one of the many causes of the disintegration of the US housing market in 2008 (1), called the “housing bubble” (2). Therefore, in 2010, the Obama Administration passed the Dodd-Frank reform legislation (3) which in practice prohibited to institute loans that are granted with the sole stated income declaration from the prospective borrower (4) as the only evidence of his eligibility and ability-to-pay his obligations derived from the loan covenant (5).

After all the damage caused by the Dodd-Frank legislation piece to access to housing (14), community banks, and American families (6) (7) who, as explained by White House (8), were impeded access to housing (9), the Trump Administration passed severe reforms to roll back many segments of the aforementioned legislation (12) and to the Commercial Code (10) that did not repeal the Act (11), but empirically allowed the return of a variant of stated income loans (13). Stated income loans return, however, is with the condition that this affirmation of the “ability to repay” from the prospective homebuyer or borrower (14) is evidenced by the submission of documents and statements issued by banks or relevant financial institutions (15) (16). Furthermore, the debtor of the mortgage does not occupy the property subject of the contract (17).

So, in a nutshell, after the rollback of the Dodd-Frank financial reform, we can define what are stated income loans nowadays like this.

Stated income loans are a type of eligibility criteria for loan contracts wherein the borrower evidences his ability to repay the contractual obligation through the submission of documents issued by financial institutions such as bank statements. These stated income loans are suitable for self-employed subjects who cannot exhibit evidence to document their repayment ability and that have maximized their tax deductions, thus reducing their adjusted gross income and therefore, becoming less eligible to lenders.

As these stated income loans or now most adequately called “bank statement loans” are not conventional mortgages and thus, are offered by non-qualifying mortgage lenders, they cannot be sold to Freddie Mac or Fannie Mae, like mortgage-backed securities, what is what lenders usually perform with conventional mortgages. Freddie Mac or Fannie Mae are not originators, but purchasers of these mortgages.

Therefore, as stated income loans cannot be easily negotiated by the lender in the secondary house market and are less interesting to underwriters, the lender must assume more risk. As a consequence thereof, expect a lower loan-to-value and a higher FICO score required to the prospective borrower.

Of course, not all lenders offer non-qualifying mortgage lenders. Complete our form to gather information from diverse lenders that offer these mortgage loans.

Pros And Cons Of Stated Income Loans

Pros

  • Downpayment required is low, typically it is ten percent.
  • No pre-payment penalties.
  • The approval process is faster because there are fewer documents involved in the qualification.
  • Tax returns are not required, so the ability to pay is normally evidenced only by a range of bank statements.
  • One of the best option for freelancers, consultants and self-employed workers who may not be eligible for qualification with conventional mortgage loans

Cons

  • Few non-qualifying mortgage lenders in the market, as these operations are riskier. However, we can help you to contact one filling our basic form to request more information.
  • More risk for the lender, so he has to hedge this risk through a higher credit score required, typically, no less than 600, mandatory downpayment, and a lower loan-to-value ratio. Expect higher rates in general.
  • The Dodd-Frank legislation was partially rolled back but anyway it is still an impediment for American families to obtain access to housing and credit and affects community banks as well.
  • No programs are available from the government such as HUD, USDA, VA, or FHA. Those government programs have strict requirements and there are no “FHA or VA stated income mortgages” loans at all.
  • While the requirements are more lenient than with conventional mortgages, you still need to provide a range of bank statements as evidence of your ability to pay since the Dodd-Frank Act was passed.

These loans require very little documentation and no tax returns are needed offering a very quick loan process. Borrowers can get up to 70% loan to value ratio of the property and have no prepayment penalties. This might sound strange but these stated income loans are perfect for independent contractors who have difficulty documenting their income.

This is ideal for anyone looking to buy a non-occupant property for investment purposes. Small business owners and investors use these loans to grow their equity for rental properties. Whether you are an investor, house flipper, or landlord with multiple write-offs on your tax returns you can buy these investment properties without fully documenting your income.

Most of the disadvantages come in the type of loan you are getting. These loans require large down payments, typically upwards of 30% and closing costs can be higher than a traditional mortgage.

Applicants should have a fairly good credit score and a large number of reserves for a large down payment. The higher the risk the more the lender will shy away from the loan. The better your financial situation is the more likely you are to be approved. Credit scores of at least 600 are usually needed as well as a high level of income.

So, if you are an investor, landlord, or looking to buy and flip the property, these stated income loans are ideal. Again, I definitely don’t want to scare you with any subprime mortgage fears as many programs have been carefully put into place to prevent that. But, you may qualify and if you’re an investor, this is an excellent option.

Requirements Of Eligibility For A Stated Income Loan

Each lender has different requirements. I suggest you complete a form with us to gather information, and then select the lender that offers you the best conditions. We update frequently this article, and today, you can expect to see requirements similar to these below:

  • At least one year of bank statements or relevant evidence. Many lenders are requiring two years of experience along with bank statements.
  • Non-owner occupied property.
  • Lower debt-to-income ratios can vary by lender, but empirically, in the current standards, expect an average of 70%
  • Downpayments tend to be higher, with at least 20% and up to 30%
  • Higher credit scores are needed of 600 or above.
  • A higher cash reserve may be required.
  • Interest rates can be 1% above normal rates
  • Stated income loans with no proof of income requirements exist only for investors buying non-owner-occupied properties. These are short-term, asset-based loans. This part of the Dodd-Frank legislation piece was not rolled back or repealed in any way.

Self-Employed Borrowers Access To Stated Income Loans

A freelancer or a self-employed subject cannot be eligible for conventional mortgages due to the extensive documentation required of taxes and sources of income to prove the ability to pay the loan required by Dodd-Frank financial reform.

Freelancers and self-employed workers, declare many expenses in order to write off expenditures from tax obligations and therefore, they remain with less net income and this adds an additional issue for the satisfaction of the strict qualification scrutiny of lenders and underwriters to furnish conventional loans, in general, and mortgages in particular.

The aforementioned prospective borrowers may now submit bank statements of the last semester (or of the last two years as requested by some underwriters in 2020)

It is an ideal alternative for those without enough income on their tax returns to obtain conventional bank funding. Stated income loans permit you to state the amount of income that you and your business earns. Depending on the amount you state, our experts calculate the total that we can lend and the interest rate that you will pay

You don’t have to provide tax returns and pay stubs to receive approval.  These loans are available to individuals, investors, corporations, LLCs, partnerships, and trusts.  They typically require a lower loan to value and a higher FICO score and are a great alternative if traditional financing is not possible.

Real Estate Investors And Stated Income Loans

Whereas stated income loans are unavailable for real estate objects that are owner-occupied, they are possible for investors looking to invest in real estate property.

These loans would suit very well to prospective landlords, investors who want to diversify their portfolio, and even simple house flippers.

A stated income commercial loan focuses on a parcel of commercial real estate instead of your credit history. The property’s income value must be able to maintain the mortgage, insurance, and taxes for a stated income commercial loan approval. One advantage of a stated income loan from over a traditional commercial loan is that the approval process is faster because there are fewer documents involved for you to qualify.

How Stated Income Mortgage Loans Work?

Stated income mortgage loans do not require a borrower to verify income with tax returns or pay stubs. The borrower is required only to provide a statement indicating the amount of money earned. This provides an approximation of the household’s income. Typically, the stated income lenders want just to determine that a borrower is able to pay the mortgage in accordance with the terms of the loan.

Stated income loans do require a sizeable down payment (usually 30%) as well as a minimum credit score (usually 600).  Because stated income loans are inherently riskier than loans with income documentation, the interest rate may be slightly higher than a conventional loan.

As a borrower, stated income mortgage loans are a great way to finance a purchase or to refinance an investment property.  As long as a borrower provides accurate information and has a good credit score, approvals are quick and easy, and funding the loan is significantly faster compared to conventional loans. The difference in premiums and interest rates depends on the lender you choose. Different lenders may offer different interest rates as well as processing times.

Examples And Cases

1. You own an investment property such as a rental home or apartment complex that is in need of repair or renovation. The recent addition of numerous stated income loan programs has given investment property owners a way to refinance without proving income on tax returns or verifying through a 4506T. These loans allow landlords to obtain a cash-out refinance to pay for repairs and or renovations to rental properties.

2. You applied for a mortgage loan and were told that you didn’t make enough money to qualify. Over the last 9 years lending institutions have held strong on debt to income ratio caps when it comes to qualifying borrowers for home loans. Only recently have those guidelines been relaxed making available numerous loan programs that use alternative income verification methods. Those methods include employer VOE, CPA letter, and bank statement programs. These programs are sometimes referred to as no income loans and are easier to qualify for than your conventional mortgage loan.

3. You want to get into real estate investing but do not show enough income to get started. If you want to start buying real estate investment properties but cannot qualify due to a lack of provable income then you may need to look into no income loans that take into account the gross rental income that a property will garner on the rental market. This will allow you to build your real estate portfolio and qualify based on the properties earning potential and not your current income situation.

4. You want to leverage your rental property to pay off credit cards or other personal debt. If you own an investment property you can refinance the property and pull cash out to pay off debt. Many times investment property owners are sitting on properties that they own outright or owe very little on the mortgage. For these types of borrowers, no income loans are an excellent way to pay off and or lower their monthly expenses.

5. Family or personal emergencies. Many times life throws unexpected curve balls at us that we struggle to deal with. For borrowers who own an investment property, these situations are not as unmanageable as one may think. Many stated loan programs have evolved past the days of the subprime mortgage. Many lenders have rates starting as low as 5% and can close within 15 days from applying. As we all know money doesn’t solve all problems but it sure can help.

For Whom Are These Loans?

Would these loans be suitable for you? Should you move, instead, into a more conventional loan? Well, let´s see for whom are normally these loans intended, to see if they are convenient for you.

Small business owners who experience large fluctuations in income from year to year might have difficulty with their banks. A no-income check loan might be an option.

Foreign borrowers who do not file tax returns often can’t obtain financing at their bank. A stated income loan might be the solution. This would also include out of state investors, as we have no residency requirements.

Properties that have experienced vacancy or turnover might not reflect enough income on their tax returns to qualify for a conventional commercial mortgage. A lite doc loan might help in this case. These loans include recently rented or recently stabilized properties with a limited track record.

Borrowers who do not qualify for bank financing, or limited post-closing liquidity, and that need a more relaxed approach to income qualification. This might include borrowers with limited seasoning or limited experience owning their properties.

Purposes for Stated Income Loans

We refer normally to mortgages in our site, but let´s not forget that these loans can be used for a wide variety of purposes, including debt consolidation, property acquisition, working capital, property improvements, and refinances. This type of funding can also serve as a source of general working capital.

SISA Mortgage Loans

The abbreviation is Stated Income and Stated Assets. SISA loans can be for residential or commercial properties. Usually, the max loan to value is 70%. There are no credit score requirements for this loan with many lenders. There is are not tax returns or W2s requested.

This is a type of reduced documentation mortgage program which allows the borrower to state on the loan application what their income and assets are without verification by the lender; however, the source of the income is still verified. SISA loans fall into the Alt-A classification and carry a higher interest rate than a prime mortgage.

These loans are nominally intended for self-employed borrowers or other borrowers who might have difficulty documenting their income. Stated income loans have been extended to customers with a wide range of credit histories, including subprime borrowers.

Stated income loans fill a gap of situations that normal loan standards would not approve. Self-employed borrowers often use SISA loans because their tax returns might not reflect the actual cash flow they have available to pay their mortgage. Other borrowers might use a SISA loan because their income comes from sources which are hard to document.

Some lenders may require the borrower to sign a form authorizing the lender to obtain a copy of the borrower’s tax returns from the IRS should the borrower default on the mortgage.

Similar Figures: What Is a No-Income Verification Mortgage?

This is another term for a stated income mortgage. Like a stated income mortgage, this home loan considers other factors besides W-2s, pay stubs, and tax returns to qualify you for a loan. The lender may consider your available assets, equity in your home, and overall cash flow reflected in bank statements.

There are several types of no-income verification mortgages:

  • Stated income, stated assets (SISA): No verification of income or assets. No longer exist for owner-occupied properties; these are only for investment properties today.
  • Stated income, verified assets (SIVA): Lenders accept assets for loan approval. It is also called a bank statement loan.
  • No income, verified assets (NIVA): Like a stated income, stated assets loan, but no income is on application.
  • No income, no assets (NINA): These are only for real estate investors. May be called hard money loans, high interest, short term

FAQ – Frequent Asked Questions

Are No-Income Verification Mortgages Safe?

No-income verification and stated income loans are much different than years ago. Because of the Dodd-Frank regulations enacted in 2010, borrowers must show their ability to repay the loan, which makes them much safer. But there is more flexibility in how you show your ability to repay.

What is a SIVA loan?

SIVA stands for Stated Income Verified Asset loan. This type of loan allows you to state your gross monthly income and requires the lender to verify assets – usually done by you providing bank statements or brokerage statements or some type of document that verifies your having the assets you claim to possess on the loan application.

Are Stated Income Loans Available?

Yes, but a stated income loan today still requires you to prove your income and ability to repay the loan. You can prove your ability to repay with bank statements, financial statements, and cash reserves in lieu of tax returns, W-2s, and pay stubs.

What is a SISA loan?

SISA stands for Stated Income Stated Assets. This loan type requires you to state both your gross monthly income and your assets. You are not required to verify these but simply have to state it and the lender will take your word for it.

Are There No Income Verification Mortgages?

Yes. A no-income verification mortgage is another name for a stated income mortgage. It is required to prove that you can repay the loan, but you can use alternative documents, such as bank statements and financial statements.

What is a No Doc loan?

Although guidelines will vary by lender, a true “no doc” loan program is where you don’t have to verify anything other than your identity and citizenship.

How Do I Get a Stated Income Home Loan?

A borrower needs a credit score of 600 or higher, cash reserves, and bank statements that show enough cash flow to pay the loan. A higher down payment could be required for some lenders.

Can I be declined if my stated income is too high?

Yes. It is possible to have your loan declined for the reason that your stated income does not match your job description and title. If you are a waitress and you declare making $10,000 per month, the underwriter will have a reason to doubt the accuracy of your application. Underwriters have resources to see the range of pay based on title and job description – and while not always accurate, they are typically in the ballpark. It is also possible that the underwriter or lender will require that you fill out a form (IRS Form 4506), which allows the lender to request IRS verification of your tax returns for the previous two years.

How Is a Stated Income Loan Different From a Conventional Mortgage?

A stated income loan is different than a conventional mortgage loan in that the borrower can use alternative documents to prove their income, such as bank and financial statements. A traditional mortgage requires tax returns, W-2s, and pay stubs to prove the borrower’s income.

Is there a minimum credit score for stated income loans?

Yes, minimum credit score requirements will vary by lender and program. Normally the credit score required is 600 or more. Californian lenders require less credit score as there is a lot of competition in the non-QM market currently.

Is there a minimum down payment required for stated income loans?

Because the lenders cannot properly verify your income, they make up for the risk by asking you for a down payment (aside from having excellent credit). Minimum down payment requirements will vary by lender and program. They typically require a higher down payment than conventional loans.

stated income loans