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Stated-income loan with easier standards assists wage earners and self-employed

By Jeff Lazerson

11/8/18

What I think: Where is the energy and action these days when it comes to mortgage products?

After all, most well-qualified borrowers are hunkered down enjoying their lower mortgage rates. According to Mortgage Bankers Association chief economist Mike Fratantoni, 75 to 80 percent of mortgage holders are below 4 percent.

Lenders are in more of a survival mode given the general market slowdown. So, they are once-again, getting more creative.

“The non-QM or expanded credit market is the only segment of the mortgage market that is growing this year,” said Guy Cecala, CEO and editor of Inside Mortgage Finance. “This segment grew by 24 percent in the first nine months (of this year) while the overall market declined by 6 percent.”

Within this expanded credit market (which is outside of the conventional Fannie and Freddie box) is the re-emerging stated-income world. Easier standards and easier qualifying await self-employed borrowers since I first wrote about this loan in August 2017.

This is a bold new bonanza for salaried employees and wage earners as well.

You can qualify for a loan with a minimum 680 middle credit score so long as you put at least 30 percent down. Your only choice is a 7-year adjustable rate mortgage. No fixed rates.

Two to four units are allowed with a larger down payment. And, investment properties are allowed.

Even borrowers who had gone through bankruptcy, foreclosure or a short sale more than seven years ago can get an OK.

So, what’s the catch? There are several catches. I will highlight the more important ones.

First and foremost, you will need the most recent two months of bank statements to show you have funds for the down payment. For purchase and refinance loans, you will need 12 months of total house payment reserves to qualify. Yes, you can also count retirement funds at a discount value.

Second, wage earners must state an income on the application that is reasonable for that job. Busboys claiming an income of $80,000 will not fly (like the olden days). Your employer will be contacted for a verbal verification of employment. The big idea is to avoid having to show various tax return losses, for example, that traditional underwriters will flag and may hold against you.

Self-employed borrowers need a CPA letter confirming a minimum of two years of self-employment. No need for a profit and loss statement on this stated-income program. Nothing is needed from the CPA to support the stated income on the application. Where applicable, business or professional licenses are required.

Be mindful and be careful. If you can go full-doc, then do so because you’ll receive better pricing than the lesser documentation requirements of stated-income loans.

This expanded credit market is trending toward the wild West of fictional rate quotes. Shop around. Ask questions. It’s never a done deal until you have a written loan approval along with a rate-lock letter.