Mortgages & Creative Financing

Why Are There No More Stated Income Loans?

Expertise:
23 Articles Written

It wasn't all that long ago that there was the "perfect" loan for people who were small business owners and had very little income according to their tax returns.

These stated income loans had all different kinds of names – most of them sounded pretty cool at the time. NINJA, NINA, STATED, NO DOC, LOW DOC and I am sure quite a few other names — just to name a few. There wasn't a week that went by where some lender somewhere didn't come out with a new loan for some market segment that up to that point was unable to obtain financing.

Had bad credit?

No problem – there was a loan program available for you.

Didn’t have any income?

Again, no problem — there was a loan program for you too.

Just filed bankruptcy?

Yep, there was a loan program for you — as long as you were at least one day out of bankruptcy.

And then it all changed.

Almost as quickly as they came, the various loan programs with cool sounding names went away.

And although there are many factors as to them going away, perhaps no factor was as big in the elimination of stated income loans as the 4506T.

The 4506T is a document that allows the lender to go and pull your tax returns with the IRS for the last few years. Prior to only a couple of years ago, virtually no lender required that you signed the 4506T when applying for a loan. Now, I am not aware of a lender who will give you a loan without a signed 4506T on file.

And although that isn't the only reason that stated income loans went away — it is one of the biggest. Now, rather than just making you provide your income documentation prior to underwriting your loan application, most lenders now require that you also sign the 4506T so that they can actually verify that your income is correct.

And I think it was one of the wise-old-Presidents who once said:

Trust but verify.

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    Craig Grella
    Replied over 9 years ago
    Good post and summary. It all comes down to where the originator can sell the loan. with Fannie and Freddie buying more than 50% of all loans in the US, they’re setting the rules. Right now, now high risk stated products. They announced they will buy back more delinquent loans starting in april, which can be traced to stated loan originations. Hopefully that will free up more cash for originators to become more competitive with rates, or even to add a few new loan products. I doubt we’ll see a real stated product again for some time though, if ever. .-= Craig Grella´s last blog ..Welcome to Cornerstone =-.
    Joe Feinhandler
    Replied over 9 years ago
    I don’t miss stated income loans a bit! Now no ratio thats a different story because they never had he “Liar” factor. Tell the real job and leave the income blank. Ah the bad old days. .-= Joe Feinhandler´s last blog ..Three Big Reasons to Buy in San Diego NOW! =-.
    Jennifer Giraldi
    Replied over 9 years ago
    Great article Justin. The main reason we will not see many stated-income loans in the near future will be becuase the astronomical default rate. These types of loans led the pack in highest number of defaults and bankruptcies. However, as history repeats iteslef every 10,20, and 50 years, we will soon have a “wild west” of lending again. Trust me.
    mark
    Replied over 9 years ago
    I’ve been doing loans since 1988. The only correction the article is that the 4506T has ALWAYS been a part of loan documents forever. It was always signed with docs even on no doc, no income type loans. BUT it wasnt executed by the lender until last year. Those loans will not come back for some time.
    mark
    Replied over 9 years ago
    I’ve been doing loans since 1988. The only correction the article is that the 4506T has ALWAYS been a part of loan documents forever. It was always signed with docs even on no doc, no income type loans. BUT it wasnt executed by the lender until last year. Those loans will not come back for some time. Reply Report comment
    mark
    Replied over 9 years ago
    I’ve been doing loans since 1988. The only correction the article is that the 4506T has ALWAYS been a part of loan documents forever. It was always signed with docs even on no doc, no income type loans. BUT it wasnt executed by the lender until last year. Those loans will not come back for some time. Reply Report comment
    mark
    Replied over 9 years ago
    I’ve been doing loans since 1988. The only correction the article is that the 4506T has ALWAYS been a part of loan documents forever. It was always signed with docs even on no doc, no income type loans. BUT it wasnt executed by the lender until last year. Those loans will not come back for some time.
    Frank Hillen
    Replied about 9 years ago
    i don’t get it. You say they wont come back but in many online mortgage forums they are still there. BUT at the 60 tor 70% LTV. This is how it was back in the late 80s. 25 to 30% down for high net worth individuals along w/12 month cash assets (not from proceeds). They will never go away as long as there are professions that make income like this. There will always be niche financing. Although, I am glad to say or see there will never be 100% stated, or even 90% stated for S/E or wage earners again. Keep that out of the market and we’ll have stable 3 to 4% possible equity appreciation again.
    Kyle
    Replied almost 9 years ago
    Frank, Where do I find the no doc or low doc loans? I have only had my properties for a short time and the banks will not include my rental income in qualifying for financing. I would be fine with a low ltv, I just want to keep investing.
    Frank Maturo
    Replied over 8 years ago
    I wanted to update this thread because there are good changes to qualifying for residential home loan that may help many home owners who can afford a mortgage payment but can’t qualify fully documented. The latest input to this topic is there are stated income loans and no doc available with good low rates…as opposed to hard money rates. There are many limitations including states (Ca, Tx, Wa, Ma, Ny…few other east coast states), county the lenders will lend in these states, the type and amount debt a borrower has, seasoning on a property and number of properties owned. No income, no asset and no FICO…unreal but yes it is true. The number one qualifying item is equity. You must have at min 35% equity in your home (65% LTV). Obviously appraisals are looked at closely and there can be no funny business like the old days…it just wont pass QC. All in all this is a great opportunity for the right individuals. This is for investment property as well up to 4 units. Let me know if anyone would like more info. There are also stated commercial loans for apartment building with a few other banks. Id be glad to post more in anyone is interested.
    jacob
    Replied over 8 years ago
    Hi Frank, Nice blog, thank you. I’d like some more information on these stated and no doc loans. I easily have 60% equity owned on the property. Thanks.
    Larry
    Replied almost 8 years ago
    How about a refi on a house with well over 40% equity and 8 yrs ownership? Are there any stated income programs available? Looking to lower the rate.
    Frank Maturo
    Replied over 7 years ago
    Finance1online is still doing stated income loans in several states to 70%. No doc to 50%. Also, 80% for self employed borrowers who can show their business financials (gross receipts)…no personal financials. [email protected]
    Anne
    Replied almost 5 years ago
    Great article. Thanks for the info, it’s easy to understand. BTW, if anyone needs to fill out a “IRS 4506-T Form”,I found a blank form here: http://goo.gl/e21Oh9