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What Is a Stated Income Mortgage Loan?

Updated
Kimberly Rotter, AFC®
Author: Kimberly Rotter, AFC®
Kimberly Rotter, AFC®
Kimberly Rotter, AFC®
Accredited Financial Counselor®

Kimberly is a career writer and editor with more than 30 years' experience. She's a bankruptcy survivor, small business owner, and homeschool parent. In addition to writing for The Motley Fool, she offers content strategy to financial technology startups, owns and manages a 350-writer content agency, and offers pro-bono financial counseling.

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Many home buyers need a mortgage that allows them to verify their income using nontraditional documentation. A stated income loan fills that need.

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What is a stated income mortgage loan?

A stated income loan is a mortgage in which the lender verifies your income using nontraditional documentation.

This type of loan is for people who want or need to qualify for a mortgage without relying on the standard documentation usually required by mortgage lenders. This typically includes your most recent pay stubs as well as tax returns and W2s from the last two years.

People who might benefit from a stated income mortgage include:

  • Someone with sporadic or seasonal income
  • Someone who pools resources with family members
  • Self-employed individuals with low taxable income
  • Business owner who has been profitable for less than two years
  • Salaried employee who recently got a raise

Any of these types of borrowers can be entirely creditworthy. They just might not have the kind of income documentation that's needed for a standard mortgage.

Can you still get a stated income mortgage?

Stated income loans are available from several mortgage lenders today.

The reason some people think the stated loan is a thing of the past is that it developed a bad reputation after the 2008 housing market crash and resulting recession.

The bad reputation was well deserved. Stated income mortgages often took the form of a stated income, stated asset (SISA) loan. Lenders did not verify information, often had lax requirements, and allowed very high loan-to-value (LTV) ratios -- up to 125% of the appraised value of the home. Essentially, anyone could get one.

Home prices rose rapidly, fueled by liberal lending and buying frenzies. Then the housing bubble burst.

Today, stated income programs require a credit score of at least 660. Most allow an LTV of no more than 80%, but a few allow 90%.

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How to qualify for a stated income loan

The requirements to qualify will depend on which kind of loan is most appropriate for your situation and which stated income program you apply for. Here are the general requirements:

  • For an alt-doc loan program, you'll provide profit and loss statements and at least one recent bank statement.
  • For a bank statement loan program, you'll provide 12 to 24 months of bank statements. This type of loan is sometimes called a stated income, verified assets (SIVA) loan.
  • For either loan type, if you're self employed you'll need to show that you've been in business for at least two years.

When is a stated income mortgage a good option?

A stated income home loan is a good option if you can't qualify or aren't interested in a traditional mortgage, but you can show your income using nontraditional income verification documentation.

If you're a small business owner or someone who is wondering how to get a mortgage when you're self-employed, you could benefit from a stated income mortgage. It can be harder to apply for standard mortgages because the documentation requirements are more burdensome for people who are not salaried employees.

If you do go this route, you'll notice that stated income loans cost more than standard mortgages. The lowest available mortgage interest rate for stated income loans is usually about two percentage points higher than the rates on typical mortgages.

To help you figure out what's right for you, use a mortgage calculator to estimate the payment you can afford, and use a higher interest rate if you think you'll be applying for a stated loan.

Still have questions?

Here are some other questions we've answered:

FAQs

  • A stated income mortgage is a loan for borrowers who qualify using alternative documentation, such as profit and loss statements or bank statements.

    Most mortgages today are qualified mortgages. That means lenders will verify a borrower's ability to repay the loan by looking at their tax returns, W2 forms, recent pay stubs, and other documents.

    A stated income loan allows borrowers to qualify using alternative income verification documentation, but costs more than a standard mortgage.

  • Stated income programs are good for anyone who wants or needs to qualify for a mortgage using alternative documentation. A great example is a self-employed borrower whose taxable income is too low to qualify for a standard mortgage. Another example is someone with fluctuating or seasonal income. Folks like these can have a hard time satisfying the income documentation requirements for a qualified mortgage.

  • Before the housing crash, lenders and the verification process were extremely lax. It used to be that almost anyone could qualify for a stated income program. Many of these loans were given to people without regard to their credit standing or the loan-to-value ratio.

    Today's stated income mortgage is subject to underwriting. Lenders require a minimum credit score and maximum LTV.