Stated income on mortgage applications is getting a lot of attention these days, and for good reason.  Stated income loans, also called liar loans, let borrowers (and loan officers) put whatever they want within "reason" for the income used to qualify for the loan program.  The underwriter looks at the income on the application and then checks a site such as http://www.salary.com/ to confirm the salary range.  They then calculate the borrower's debt to income ratio (DTI) off of this income.

I wanted to look at this issue from both the consumer perspective and the mortgage professional's point of view.  We'll focus on why it is bad (for the most part) from a borrower's stand point in this post.

As a consumer:

Using stated income always sounds like a good idea, because it lets you qualify for a loan that you otherwise would not be able to get.  While it sounds exciting to buy the house with the extra bedroom or get an additional $20,000 out of your house with a refinance - it is almost never a good idea. 

Read more here.