The Ins and Outs of Stated-Income Loans

Before purchasing a home, you probably want to take some time to investigate each type of financing that might be of benefit. Are you currently researching stated income loans? If you have heard of these loans but aren’t quite certain how they work, there are a few details you may need to understand about potential pros and cons, eligibility requirements and more.

Loan Nature

In general, the stated income loan variety in its original form was more common in the past than it is today. These loans were granted based almost entirely upon the applicant’s stated income, with little or no verification being requested. Most modern loans do require at least some level of verification to help guarantee ability to repay, though some allow for alternate verification methods for applicants who are self employed or have fluctuating income.

Alternative Documentation

If you feel that you might need the benefits of a stated income loan, an alternative documentation loan is likely to be the closest modern equivalent that is widely available. While standard loans may require you to provide pay stubs, income tax returns and other similar documents, an alternative documentation loan could allow you to use bank statements to verify your income. This type of financing might carry some restrictions on loan size, debt-to-income ratio and more.

Likely Requirements

Before applying for stated income loans, you probably want to feel as confident as possible that you can meet the requirements. If you are self employed and are planning to apply for an alternative documentation or stated income loan, you likely need to be able to provide bank statements that will help paint a picture of your financial history. Depending on the requirements of the prospective lender, you might need to provide statements covering a period of up to a year or two.

Common Applicants

These types of loans are generally popular among those who are self employed. If you are self employed and your revenue fluctuates depending on the month, year or season, it might be difficult to prove your income through typical methods such as pay stubs or income tax returns. The alternative documentation or stated income strategy may allow you to access the loans you need.

Stated income loans generally require less documentation than is mandated by standard loans. If you are self employed and need a way to access financing without being able to provide tax returns, pay stubs and similar forms of income verification, an alternative documentation loan may be a good choice for your situation.

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