Why would my verified income be different than my stated income?
The amount of income we verify impacts the total loan amount we can offer you. In some cases, verified income might be lower than stated income. Investor and industry guidelines govern what income we are able to use. Here are a few examples:
-If you earn bonus, commission, or overtime income that hasn’t been consistent over the last 2 years, we may not be able to give you credit for all of it. -If you are reporting any self-employment losses on your tax return, they will be deducted from your qualifying income. -If self-employment income is declining year-over-year, we have to use the lower amount. -If you report rental income, we use the net amount, after subtracting out certain expenses you have written off on your tax return. -If you are using income from alimony or child support, we have to document that it will be received for at least the next 3 years.
If you want additional certainty as to the purchase price you qualify for, we recommend getting a verified pre-approval letter.
What is a stated income home mortgage?
A stated income home mortgage allows you to declare your income without traditional verification methods like tax returns or W-2s. This type of loan can be beneficial if your income isn't easily documented, but it also poses certain risks and challenges.
Who might benefit?
- Self-Employed Borrowers: Business owners or freelancers who report business expenses that lower their taxable income.
- Commission-Based Workers: Those who rely heavily on commissions or seasonal income.
- Real Estate Investors: Individuals who report significant expenses on rental properties.
How It Works:
- You'll provide an income estimate on your application, and the lender will use alternative means, such as bank statements, to assess your financial stability.
- These loans generally require a higher credit score and a larger down payment to compensate for the lack of traditional income verification.
Before choosing a stated income mortgage, weigh its flexibility against the potentially higher costs and risks.
Stated income mortgage loans: Are they right for you?
Stated income mortgage loans, also called "no-doc" or "low-doc" loans, were once popular for homebuyers and real estate investors who struggled to provide the documentation required for traditional mortgages. Although they are less common today due to stricter regulations after the 2008 financial crisis, these loans are still available for borrowers whose income may be difficult to verify using conventional methods. Stated income mortgages can benefit individuals with non-traditional income sources, such as self-employed workers, freelancers, commission-based employees, or real estate investors. Instead of providing extensive documentation like tax returns and W-2s, borrowers can state their income, and the lender may use alternative methods, like reviewing bank statements, to evaluate the borrower’s ability to repay the loan. However, stated-income mortgage loans come with certain trade-offs that borrowers should carefully consider:
Key considerations:
-Higher Interest Rates: Since these loans are riskier for lenders due to the lack of verified income documentation, they often come with higher interest rates compared to traditional mortgages. Borrowers should be prepared to pay more over the life of the loan.
-Larger Down Payment Requirements: To offset the increased risk, lenders may require a significant down payment—often 20% or more of the property’s value. This ensures the borrower has substantial equity in the home, providing additional security for the lender.
-Stricter Eligibility Criteria : Borrowers will likely need a strong credit score and a solid history of financial responsibility. Before approving a stated income loan, lenders may scrutinize other financial factors, like your credit history, assets, and debt-to-income ratio.
-Limited Availability: Since not all financial institutions offer stated-income mortgages, finding a lender that provides this type of financing can be challenging. Researching and comparing different lenders is important to find one that meets your needs.