About Stated Income Loans
- Stated income loans help borrowers who are self-employed, work on commission or have frequent variations in monthly income. Even regular W-2 employees whose income varies, like those in sales and marketing, can use stated income loan provisions to aid in their qualification. It allows lenders to make more loans to those otherwise qualified borrowers who may have difficulty with third-party income verification.
- Borrowers need not prove their earnings in the classic ways (submitting W-2s, employer verifications or tax returns), but are merely required to state their gross monthly income amount. In some cases, borrowers are asked to submit bank statements for the past 12 or 24 months to verify that deposits were made for stated income amounts.
- There are two time frame considerations. One is that stated income loans can usually be processed quickly as there is no time spent verifying income amounts or analyzing income tax returns. Also, there are times when some lenders, because of strong loan demand, will not offer stated income loans for a simple reason: They don't have to. Their volume of full income verification loans is sufficient to meet new loan goals.
- Unless a borrower is in a great hurry or finds it difficult to verify monthly earnings, the standard income verification method is normally better. The simple reason: Interest rate. Because of the increased risk to the lender, stated income loans usually carry a higher interest rate since the borrower qualifies for the loan based only on his or her own stated information. Also, most lenders require at least a good credit report for borrowers to qualify for stated income loans.
- For those whose monthly income tends to be sporadic or those with limited income, but who have exceptional budgeting ability, stated income loans can be a huge benefit, particularly for home mortgage qualification purposes. Even though stated income loans cost a bit more than full income verification loans, many borrowers benefit from the ability to simply submit their earnings amount, upon which a loan decision, typically positive, is made.