Stated income loans are very popular with business owners. Since they write-off a lot of their expenses at the end of the year on their taxes they sometimes have very little net-income to qualify for a full-doc loan.
Generally a no income, no asset (NINA) loan requires no verification of income or assets. However verification of employment is required and 2 years of same line of work is required. A No Doc loan is a NINA without verification of employment.
Some banks offer borrowers with high credit scores stated income loan programs with no adjustments, meaning the borrowers would not get "surcharged" or penalized for not furnishing proofs of income. These stated income programs offer interest rates that are identical to that of full documentation loans.
Stated Income programs are ideal for those clients with non-documentable income sources. Typically for those who may receive portions of income in cash.
A stated income loan normally requires a slightly higher FICO score to qualify for the same loan to value as compared to a full documentation loan or bank statement program.
There are two common types of Stated Income Programs:
Stated Income Verified Assets Loan: (SIVA) - Loan approval is based on your stated income, credit history, and verified liquid assets (bank accounts, 401k, stocks, bonds, etc.). The Verified Assets should be consistent with the income claimed.
Stated Income Stated Assets Loan (SISA) - This loan has no assets being verified. You only state your income and state your assets on the application. This program may have a slightly higher interest rate because the assets are not verified.
Some variations of stated income include:
1)Reduced Doc - Income and assets are disclosed on the application but income is not verified. Assets are verified.
2)No Ratio - Income is not disclosed on the application and assets are stated and verified.
3)No Income No Asset - Income and assets are not disclosed on the application and are not verified. Employment not stated or verified.
Lenders will look at the "stated" income to verify it is not out of whack, you cannot state $80,000 worth of income working part-time as a cashier. This has to be an accurate figure of income actually made.
Stated-income mortgages are for people who make the money they say they make, but that amount doesn't show up on the bottom line of their income taxes.
Stated Income loans still must be approved by an underwriter. The stated income must make sense for the employment that the borrower has.
They say you can beat the tax man or you can beat the bank, but you can't beat them both. If your income is difficult to document because of commission based pay or revenue from self employment, stated income loan programs are available which enable borrowers with sufficiently high credit ratings to borrow money at competitive rates. Programs are often available to borrow money equaling up to 100% of the value of your home, without the need to verify your income or your assets, or in some cases without the need to verify either.
Stated Income Loans are for borrowers with income sources that are not easily verified through normal channels. So, lenders allow borrowers to state their true income without verifying it. These loan programs are usually for borrowers with good credit and come with a higher interest rate.
Many self employed borrowers take advantage of stated income loans so they do not have to provide tax returns to qualify.
As you move down the line on the different programs, from SIVA to SISA to NINA the interest rate will move a bit higher each time. Depending on your credit scores and LTV (loan to value) you might be able to qualify for one but not another.
Stated income is a very popular form of loan qualifying. As you're probably aware, most successful business owners write off a lot of their expenses at the end of the year on their taxes, causing very little net income to be used for qualifying for a loan. You also see this with borrowers that make tips, bonuses and commission as their sole form of income.