Stated income loans were all but eliminated back when the mortgage meltown happened. There was this feeling that too many borrowers were able to get loans when they had no business owning a home based upon their ability to repay the loan. In many instances, that is correct.
The problem is back then, stated income loans were available to everyone including salaried borrowers. THAT is where we ran into a problem and why stated income loans got the tag "liar loans".
If you are a salaried employee, then you can prove what your income is. There is no need for a stated income loan unless you are in a profession where you rely mostly on tips (ie a bartender). However, even in that instance, what you are saying is that I choose not to report ALL of my cash income to the IRS, but when it comes time to qualifying for a mortgage, then I need a special program for me.... because I lied when filing my taxes. Sorry... no stated income loan for you either.
Where we went wrong in over-tightening the guidelines was when we excluded self employed borrowers. When you own a business, you have to qualify using the net income on your tax returns. These business owners are taking LEGITIMATE tax deductions which results in showing a much lower net income and in some instances a loss. Meanwhile, salaried borrowers are able to qualify using their gross income minus ONLY any monthly obligations that appear on their credit report. This is a huge disadvantage for self employed borrowers. A cell phone bill is just one example. If you have a family plan it may cost you about $250 per month. Self employed individuals write that off and it also reduces their net income. Salaried borrowers do not have that $250 per month cell phone bill payment count against their back end ration when qualifying. That $250 per month monthly obligation to the self employed borrower is a reduction in buying power of $50,000. Add in a few other similar examples and now the self employed borrower is having a problem buying a home.
STATED INCOME LENDERS
In my opinion, stated income loans need to become mainstream again for self employed borrowers. Without them, you are penalizing small business owners who are already struggling and you are hurting the housing market. There are enough safety nets to a stated income loan program that you can add here to make sure that we do not have a total collapse again. Some examples could be as follows...
- 1. self employed borrowers only who own businesses for 2+ years
- 2. stated income must be in line with others in that industry
- 3. LTV no greater than 60% (requiring a 40% down payment)
- 4. half percent (.5%) rate adjustment to pay for borrower default insurance. Essentially protects the lenders who would be forced to offer these programs under my plan.
- 5. Home must be owned by the individual and not the business. Loan must be signed by the individual and not the business.
I can tell you there are millions of people who are able to make the payments but are unable to qualify simply because they are self employed. We need to correct this now by bringing stated income loans back as a commonly offered program.
MORE ABOUT - STATED INCOME Primary Residence LOANS
Stated Income Interest Rate Quote
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