Are Stated Income Loans Still Available?
Stated income loans were quite popular before the economic crisis of 2008. In the years leading up the bursting housing bubble, many lenders were offering these types of loans - which effectively allowed people to get mortgages without providing income documentation. They earned the nickname "liar loans" because so many people took out loans they couldn't afford, misrepresented their financial standing, and were mislead by greedy lenders into getting in over their heads.
All of this contributed directly to the bursting bubble, and understandably, the stated income loans of the past were outlawed in 2010 by the Dodd-Frank Act. Now, none of this means that some stated income loans weren't valid, or that they didn't serve a purpose. Rather, an idea that served a small section of the population was overused and abused, and that caused a great deal of trouble. The intended purpose of stated income loans was to allow business owners and self-employed individuals (those with nontraditional income and employment) to find home loans, even if they didn't have standard w2 tax returns - or if their bank accounts reflected fluctuations in monthly income.
This is still a necessity today, and while the stated income loans of the early 2000s are no longer available, there are still "alternative documentation" mortgage options for those with nontraditional sources of income. Most of these types of loans (and there are many, with many different names), are "non-qualifying mortgages," meaning that they don't have the same "ability to repay" rules as qualifying mortgages. This also means they often come with higher interests rates, larger down payment requirements, and so on - but for many, this is a small obstacle to securing a home loan without traditional employment or income documentation. Loan specifics will vary from lender to lender, and if you're planning to purchase investment property or a home to live in. Entrepreneurs will likely be using profit and loss (P&L) statements as their primary form of documentation, where contractors and freelancers typically use bank statements to show average monthly income over a 12 to 24-month period. Terms, and even the specific regulations that define the details of a loan, will be determined by a variety of factors specific to the borrower, and a lender will likely have several mortgage products for you to choose from. Depending on the type of documentation you can provide, the intended use of the property, your overall financial standing and real estate portfolio, and your ability to repay (among other things), different types of alternative documentation loans may be right for you. You can work with lenders to explore your options, and find the best fit for your unique scenario! While stated income mortgages are no longer available, that's ultimately a good thing. They were problematic and too easy to spiral out of control. The currently available alternatives serve the same segment of borrowers, but with far more security and oversight than in years past. This ultimately protects all involved parties, and helps people with nontraditional income find the home loans they need.