We all know what getting "creative" with your income back in the heyday of "stated income" mortgages meant. Basically, it amounted to, well, lying. Stated income loans were originally intended for those of us who were self-employed and because of the tax benefits and ability to write off a lot of items that were used for both personal and business (i.e. a car lease), being able to "state" one's income enabled people to recalculate their income based on income they may have received that they wrote off, but they were still really earning.
Of course, "getting creative" got all out of hand, and greedy lenders, brokers, borrowers (everyone was complicit), exploited the "stated income" loan to secure financing that was completely inappropriate. All of a sudden, lenders started allowing borrowers who weren't even self-employed to "state" their income. How ridiculous!
Now all of a sudden W-2 employees were "stating" their income, and no joke, there were housekeepers, security guards, city maintenence personel, all claiming they made outrageous sums of money each year. In fact, I saw a file in which the borrower was a housekeeper that supposedly made $120,000 per year!!
So when it comes to "getting creative" with your income when applying for a loan modification, I am NOT advocating fibbing or outright lying. Not only is this against the law, if you truly can't afford the home you're in no matter what, a loan modification is not for you.
However, there are instances where a borrower may legitimately need to get creative, and doing so may be completely legitimate and ethical.
For example, maybe the borrower has recently begun earning income from a cash only side job, and the income is not documented on a quarterly P&L or paystub. If the borrower can document this with receipts and bank statements, the lender may accept this as proof of income.
Moreover, getting creative may entail finding ways to cut expenses. There are certain expenses that can be significant, but unneccesary. For example, do you really need Dish Network at $120 per month? Most shows are available on the Web. You can even buy a Roku and stream films to your T.V. for next to nothing.
Likewise, are there ways you can increase your income? Could you rent a room out? You may be able to offset that mortgage payment by taking on a boarder. It may not be an ideal scenario, but if it helps you afford the mortgage, then it may be sensible.
Or, one of the best strategies out there is to renegotiate the terms of your credit cards. Many credit card companies will give distressed borrowers a very low interest rate to help them catch up. For example, I've seen Citicard lower interest rates from a default rate of 29.99% to 0% - 4.99%. Generally, they will require closing the account during this period, but it is usually worth it.
I've seen borrowers lower their payment by 50 - 70% by doing this. Once the terms are modified, showing proof or a letter from the creditor is usually enough documentation for the bank to reevaluate your debt-to-incom ratio.
These are fairly easy things to do, but surprisingly many people don't do it.
I've outlined many strategies in Loan Modification for Free Program. Please feel free to register for the free program.
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