A stated-income mortgage is for people who actually make a
dependable salary, but the salary is not easily documented. People who work almost entirely on commission
are good candidates for this type of loan.
When applying for a stated-income mortgage, the lender is
going to ask for a full list of assets and liabilities. Of course, the liabilities typically come in
the form of debt. This is to determine
if you debt-to-income ratio is small enough to allow for the borrower to afford
the payments.
The interest rate on a stated-income mortgage is usually a
point or more above the interest rate of a comparable fixed or adjustable-rate
mortgage. The credit score requirements
for a stated-income loan are not nearly as strict because much more information
has to be provided to the lender.
One of the problems that can arise from a stated-income loan
is probably quite apparent: people can lie about their income. Especially for people with good credit, the
borrower can overstate their income in order to borrow more money in order to
buy a bigger and better house.
However, the reality of lying on a stated-income loan can
quickly come to light when the borrower is unable to pay for their new
purchase. Buying that big house may
impress your friends, but it will be a blow to the ego when the home is taken
away because you can’t afford the payments.