Today's Stated Income Loans Have Changed
You may have heard of "stated income" mortgages in the past, perhaps touted as a way for property investors to finance homes for resale, or a way for those with less traditional income to secure a home loan without the usual documentation. While these types of loans served a purpose, they were also abused by some. These so called "no-doc" or "stated income" mortgages were done away with in 2008 through new regulation, largely aimed at undoing the damage of that year's financial crisis, patching holes in the existing legislation, and taking steps toward preventing another mortgage bubble in the future. While these regulations were put in place for a good reason, the absence of stated income loans leaves a gap for the would-be homebuyer that doesn't have have standard W2 income or accurate tax returns. The good news is that there are "semi-stated income" loans available in the modern mortgage landscape - they just aren't nearly as freewheeling as they once were. Most of these types of loans will require some kind of income verification, whether that's with bank statements, your business's profit and loss statements, proof of assets, or other financial information. It doesn't necessarily have to be tax returns or W2s.
All of this income verification stems from the Dodd-Frank Act of 2010, which includes a protective measure that requires borrowers to prove their ability to repay a loan. The serves to protect lenders against defaults, but also to protect homebuyers from taking on too large of loans, taking on too much risk, or overestimating their ability to afford loan payments. In the past, "no-doc" and other types of stated income mortgages were extremely risky for everyone involved, and all the changes that have happened since 2008 are intended to reduce that risk. Today's semi-stated income loans are less risky, but still quite versatile. Many lenders have options that fall under this umbrella, both geared toward investors and those with non-traditional employment.
So, if you fall into the categories of people best served by stated income loans, don't fret! Things are not the way they were a decade ago, but you still have plenty of options - and the opportunity to work with a range of reputable lenders - all with more regulation in place to reduce risk for everyone involved.
Our advice is to get your financial documentation in order (whatever that may be), as well as a clear picture of the type of home you're looking for finance, and start shopping around! Not every lender will have the right programs for you, but trust that a safer, modernized version of stated income mortgages are still out there!