The Transformation of Stated Income Loans

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Stated income loans have been a touchy subject for many regulators trying to blame some one for the mortgage meltdown. Some individuals go as far a calling these loans “liar loans” because in a number of instance the income was inflated. Right or wrong there is a need for stated income loan. Self-employed individuals see the biggest benefit from stated income loans, but as lending guidelines have tightened up over the last year, so has the language of the stated income loans. Stated Income Loans have now transformed into Asset Based Stated Income Loans. With these loans underwriters are now paying careful attention to assets, employment history, and reason ability of stated income.

For investors this will become very important because individual now will need to have legitimate companies with web sites, yellow page ads, and internet presence. They will also need to create cash reserves to help substantiate and protect their stated income amount. The other alternative is to use tax returns to qualify and for those that like to write off as much income as possible this can be a dead end.

Asset Based Stated Income Loans are ideal for self-employed/salaried borrowers with excellent credit. No tax returns or other written verification of income. Assets are required to be verified with at least two months statements.

What is often required for a stated income loan:

1. ASSETS – Liquid assets are now required to equal at least 6 times your stated income. If you state that you make $10,000 per month we will require at least $60,000 in your bank accounts.
2. EMPLOYMENT HISTORY – We look for individuals to be self employed or 1099 income for at least 2 years. We require a business license or a letter from your CPA verify your employment history.
3. REASONABLITY – If your income is over $25,000 per month underwriter will look to substantiate the dollar amount. They will look for your sources of business. Items like a website, yellow pages, dex pages, magazine advertising, and new paper ads are resources an underwriter looks at to determine the scale of your business.

Asset based stated income loans are designed to utilize verified assets to support the income stated on the application.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.