The mortgage industry has practically seen an explosion of new loan packages catering to the needs of just about anyone. Stated income financing is one such option.
One of the great aggravations of getting a loan for a home is the paperwork. Frankly, it makes doing your taxes look simple. If you fall short on any of the documentation, you can run into real problems getting the loan, even if you have great credit. This is particularly true for one group of people.
If you are self-employed, you probably already know that applying for loans is a nightmare. The problem? Proving your income. Lenders run a number of calculations when evaluating loan applications. Many of the calculations use your income as one of the factors. As a self-employed person, this can be problematic. Simply put, how do you prove your income?
Traditionally, lenders have asked to see your past tax returns. While helpful, tax returns do not show the true situation. Your business income is usually shown on Schedule C of the tax return. The numbers, however, can be deceiving because they tend to include deductions that don’t actually reduce the amount you are taking home each month. One such deduction is depreciation.
So, what do you do? A relatively new loan program tailored to people that have problems showing income is the stated income. This loan is pretty much what it sounds like. You provide your income figure and the address of the property you are interested in. The lender then pulls your credit report and makes a decision on whether to loan you the money. Pretty simple, eh?
While stated income options are great for many self-employed people, there is a cost. The lender is forgoing a lot of information, so it tends to view the loan as more risky. Given this, you can expect to pay points on the loan as well as a higher interest rate than published with documented loans. How much? It depends on your situation and the lender.
If you are self-employed, the good news is there is a mortgage program for you. The key, of course, is to figure out if it makes financial sense.
Dan Lewis is with Great Western Mortgage - providing
California Mortgage Home Loans.
