For people with nontraditional income, acquiring a home loan can be a tough process. Whether it's a freelancer, an entrepreneur, a serial investor, or anyone else that doesn't have consistent, W2 based income, qualifying for a traditional mortgage isn't likely - simply because of the income verifying requirements most lenders have in place.
The alternatives, however, can also be daunting. Because nontraditional mortgages are less common, most people might not be aware of their options, or understand the details about each type available. One of the more common types of nontraditional mortgages is the "Stated Income mortgage" - but even that comes as an umbrella term.
Today, we'll look at the major differences in two loan types that fall under the "Stated Income" umbrella: SIVA and SISA loans. While they share many features, knowing the difference (and which to choose) can make a big difference in the long run.
SIVA stands for "Stated Income Verified Asset" - meaning that you're allowed to state your gross monthly income, but the lender requires you to verify assets with documentation, bank statements, brokerage statements, etc.
These types of loans may be ideal for people with cash flow that is difficult to document, but have a strong portfolio of properties, stocks, vehicles, or other assets that show both overall net worth and the ability to manage debt.
SISA stands for "Stated Income Stated Asset" - meaning that you not only state your gross monthly income without thorough verification, you also state your assets the same way. A lender may still require bank statements as verification of net worth.
Like a SIVA loan, these are ideal for people with abnormal income that may be difficult to document (artists, people working for tips, cash-driven businesses, etc.), with an added element of agility for assets that may also be difficult to document.
You may also be required to sign an agreement to provide tax returns and other documentation should you default on a SISA loan.
Again, if your income is not the easiest to document, these nontraditional mortgages are a way to qualify. Perhaps you've been denied on traditional mortgage applications, or think that your lack of standard W2 income will prevent you from qualifying... These are both excellent scenarios for exploring Stated Income loans!
Being self employed, a freelancer, a trader, or other form of nontraditional employment doesn't have to prevent you from getting a home loan.
All loans are risks for the lender. All Stated Income loans mean the lender is taking on even greater risk, since there's less of a paper trail confirming income and financial stability. With SIVA, you'll verify your assets, which helps reduce the lender's risk, but they still need to protect their interests. This typically happens in the form of restrictions and requirements related to total net worth, credit score, a large down payment, and so on.
With SISA loans, the risk for the lender is greater still. Unverified assets offer the lender even less assurance that you will be able to pay back your loans, and removes the potential for seizure and other forms of protection against default. This, of course, means even steeper requirements than SIVA loans. Restrictions may include extremely high down payments, strict credit score minimums, and so on - and can even go as far as only qualifying applicants who are purchasing their second home, requiring established history of self employment, agreements to disclose more information in the event of default, and on and on.
Each lender will have their own set of requirements for both SIVA and SISA loans (if they offer both). As a rule of thumb, a SIVA loan is going to be a little more lenient, where a SISA loan presents the lender with increased risk, and therefore results in steeper requirements.
Both of these types of Stated Income loans can be wonderful for self employed home buyers. Don't let the prospect of restrictions and high down payments scare you away. Contact lenders and ask about your options - and you'll find the loan type that works best for your unique situation.