Stated-income loans are pretty tough to find these days. Most lenders want something more than your written promise that you have the funds to repay the six-figure funding they’re fronting you.
But for non-traditional earners, non-traditional mortgage loans continue to be important financial tools — although today, those tools have evolved beyond the stated-income loans of the early aughts. Maybe you’re a first-time home buyer whose income comes to you, in large part, in cash tips; maybe you’re self-employed, or a small business owner, and have the cash but not necessarily the traditional documentation most conventional mortgage lenders are looking for.
Or maybe you’re just curious about the different types of alternative income verification loans available on the market today. In any case, here’s what you need to know about stated-income loans, and the updated mortgage alternatives that have sprung up in their place.
What is a stated income loan?
Stated income loans are pretty much what they say on the package: in order to apply for one, a borrower simply states their income, skipping the part where the lender verifies it by doing an in-depth review of their pay stubs, tax documents, and other paperwork.
These loans are also sometimes known as SISA (stated income-stated asset) loans, NINA (no income-no asset) loans or, colloquially, “liar’s loans.” Yikes! But as damning as these monikers may be, it’s true that these subprime loans did have a significant role in the 2008 financial crisis. Let’s take a closer look.
Who benefits from stated income mortgages?
Stated income mortgages were originally designed for non-traditional earners — all the same people who benefit from no-doc mortgages, such as the self-employed, people who work for commission, immigrants, and others whose income may be unpredictable and more difficult to verify than regular W-2 employees’.
But along with making it easier for borrowers to acquire funding, stated income mortgages also made it easier for lenders to dish out funding, an ostensibly lucrative business tactic that all of us who lived through 2008 know didn’t work out as planned. Although stated-income loans generally had higher interest rates than other types of loan programs, people rushed en masse to take advantage of their easy qualification requirements. Unfortunately, many borrowers who relied on stated-income loans may have overstated their assets. In any case, many of these loans went unrepaid in the long run, which cascaded into the full-blown foreclosure crisis we all unfortunately remember.
Do lenders still offer stated-income loans?
After the 2008 fiasco, the federal government swooped in with new restrictions to help avoid the same kind of scenario in the future. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act requires lenders to verify borrowers’ ability to repay mortgage loans, which they do by checking on factors like the borrower’s income, credit score, credit history, cash flow, debt-to-income ratio (DTI), and more.
However, conventional mortgages that utilize a full income verification process still leave some worthy borrowers, who can repay their loans, out in the cold. Fortunately, there are alternatives to stated-income loans that can help match up non-traditional borrowers with the mortgages they need to land the keys to their dream homes.
What are some types of alternative income verification loans?
Although stated-income loans are hard to find these days, there are some other types of non-traditional home loans available to those whose financial circumstances may make it difficult to qualify for a conventional loan — even if they have the money to repay the debt. These are all considered non-QM loans, or non-qualified mortgages, since they don’t conform to the standards set for conventional home lending.
Although these options may have higher interest rates than other loan programs, and come with their own loan application requirements, down payment minimums and qualifying factors, they may still make it possible for some borrowers to get the funding they need.
Here are some alternative income verification loans that could be helpful to you as a non-traditional borrower:
Bank Statement Loans
For self-employed borrowers, freelancers, gig-economy workers, and others who have a solid income without the W-2 tax documentation to verify it, bank statement loans can be a helpful option. While borrower income is still verified, when applying for these loans, that verification is done using bank statements rather than tax returns.
Bank statement loans may require at least 12, and up to 24, months of bank statements for verification purposes, and may also have additional requirements, such as maximum debt-to-income ratios and maximum loan amounts. Minimum down payments may also be higher than you’d see with FHA loans.
Also known as asset depletion loans, asset-based mortgages and asset utilization loans, asset-qualifier mortgages use — you guessed it — your assets to qualify you for a loan. In particular, these lenders look at a borrower’s liquid assets, or ones that can be converted to cash in a short period of time. For example, funds you may have in a savings or money market account are liquid assets, whereas money you have tied up in an existing real estate property is not.
Asset-qualifier mortgages may not require any income documentation or employment verification whatsoever apart from verification of the assets themselves, and may also eschew a maximum DTI requirement.
However, these loans generally only work for borrowers who have a lot of liquid assets on-hand; a bank may require you have at least $500,000 in post-closing assets, for instance. Additionally, the bank may require the funds to be “seasoned” for a certain minimum amount of time, which is to say, the money usually has to have been in your account for at least six months or so.
Investor Cash Flow Loans
If you’re a real estate investor planning to earn income by renting out the property you’re purchasing, an investor cash flow loan may help. These loans allow borrowers to provide a rental analysis to demonstrate expected cash flow from investment properties, and to use that instead of personal income and employment verification to qualify.
Could a Community Development Loan1 be right for me?
What’s another option for non-traditional mortgage borrowers looking for alternative income verification home loans? Quontic’s Community Development Loan, or CDL, program.
Because Quontic is one of only 3% of U.S. banks bearing a Community Development Financial Institution (CDFI) certification, it’s part and parcel of our mission to help underserved communities. One important way we’re doing that is through Community Development Loans (CDL), which don’t use the same standard income verification process as conventional loans do. Instead of providing tax returns and other typical documentation, CDL borrowers are qualified based on a holistic financial and credit profile, which may make these loans more attainable for self-employed borrowers and other non-traditional earners. Community Development Loans also accept up to 100% of down payments, closing costs, and reserves as gift funds. Quontic is licensed to lend in all 50 states. Our loans are available to both first-time homeowners and those looking to refinance existing assets, including investment properties.
Our customer service specialists are standing by to answer any questions you may have as you take your first step toward homeownership.
1All lending products are subject to approval. Rates, program terms & conditions are subject to change without notice. Not all products are available in all states or for all amounts. This does not represent an offer to enter into a loan agreement. Other requirements, restrictions & limitations apply. Information is accurate as of September 12, 2021.