What are Stated Income or No Doc loans?
These loans used to be solely for self-employed borrowers. The majority of self-employed individuals typically can’t or do not want to provide income documents. They are unable to verify enough income even though they are able to afford the mortgage payments.
A stated income or No Doc loan basically allows the borrower to be qualified based on their appraised value and credit history. Lenders will not ask for proof of income only proof of employment (for Stated deals). Also lenders will typically want stronger FICO scores to obtain one of these loan types.
Of course the interest rates associated with these loans are higher than the full documentation loans. However the borrowers are willing to take the higher rate for the ease of the loan.
Lately these loans have become very popular. Borrowers that are not self-employed have started using these loans. Also lenders have loosened up guidelines to allow for over 80% loan to value, in most cases up to 100%. Here borrowers are able to buy homes that normally they would not be able to afford.
This particular instance has been a problem lately. Since government officials have begun to check up on these stated income loans. If the borrower goes into default on a mortgage, the lender can request IRS records to find out if they actually make the amount of money they ’stated’ they did to obtain the loan. If they don’t and it was a gross overestimation the mortgage brokers could be need liable.
So if you are looking at a Stated Income or No Doc loan, make sure you are still able to afford the mortgage payments each month.
