Stated Vs. Full Documentation Mortgage Loan Programs
Oftentimes self-employed people are put in a dilemma when purchasing a loan. Their income throughout the year is higher than the amount of money that they declare on their income taxes. This is because most self-employed people have legal deductions that they claim, thereby lowering their tax burden.
Since the income of a self-employed person is determined by their net annual income, they sometimes will be rejected when applying for a loan because of a key element in the loan approval process known as the debt to income ratio. If the amount of your monthly debt is more than 45% of the income that you earn, you will oftentimes be rejected. Lenders like to know that you are spending less than 45% of your income on your basic monthly payments. These payments include your principal and interest on the loan, your property taxes and homeowner's insurance, car payments, credit card payments and any other installment loan payments.
For example if you have $2,000 worth of monthly payments and earn $60,000 per year ($5,000 per month) your debt to income ratio would be 40%. However if after tax deductions your net income is reduced to $45,000 ($3,750) per month then your debt to income ratio would be 53% and your loan could be rejected.
The good news is that banks and lending institutions understand this and have created a method for this type of borrower to qualify. Under these circumstances, the bank is willing to let you state your income. This monthly income that is stated should represent the gross amount of your annual income prior to Schedule C deductions. In this loan scenario the borrower states $5,000 as his annual income and since $5,000 is a reasonable income for the type of work he does and represents the borrower's actual gross income before tax deductions, it would be accepted.
However, in order to qualify for a stated income loan, your credit must be in very good standing. If your credit score exceeds 680 then you can receive the best rates available under the stated income program. This rate is always slightly higher than the rates of a full income documentation loan, but usually only by .25%. The privilege of stating your income does come at a small price.
If your credit score is below 680, then a stated income loan is still possible at an even higher interest rate. The lower your credit score, the higher the interest rate will be. Credit scores below 620 could cause the borrower problems with qualifying and other restrictions could apply.
If you wish to find out more about YOUR specific situation you can go to my website and put in your information. I will receive your request by email and contact you soon afterwards.
Purchase inquiries, refinance advise and prequalification letters are also welcome and available.
Good Luck and Happy Hunting.
My name is Allen Sayble and I have been a loan officer since 2001. I specialize in hard to find loans for borrowers with less than stellar credit and income situations, but also work with refinances and purchases for borrowers in good standing. I am based out of Ashland, Oregon and can write Oregon Home Loans and California Home Loans. At this time in the mortgage business it is most important for each borrower to work with a professional loan officer. It's also best to work with a broker, like myself, who has access to all of the different lenders so as to not be restricted to one lending institution or bank. Please visit my website www.mortgageconsumer.com to learn valuable information about the loan business so that you can be well informed about the loan process and make the most educated decision with regards to your home loan. You can also contact me at 541-324-9623.
