Stated Income Mortgage Assists Self Employed Borrowers

By Karen Lawson
Calculators for Mortgages Columnist

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Self-employed individuals may have problems prequalifying for a conventional mortgage due to specific requirements for verifying income. A stated income mortgage can be useful for self-employed borrowers. It allows borrowers to qualify for a home loan based on estimated income.    Why Consider a Stated Income Mortgage?
Unlike mortgage loans requiring full documentation of employment and income, stated income loans require verification of income sources, but not the exact amount. This can be useful for self-employed borrowers whose incomes vary and may be generated from multiple sources. For example, some guidelines require underwriters to look at your income over the last two years and take the LOWER amount for qualifying purposes--even if your business makes a lot more than that figure now. A stated income loan can allow you to use your current income to qualify. For stated income mortgage loans, lenders will verify the source of income, so be prepared to provide copies of tax returns and accounting records that verify your income sources.  

Lender Risk Impacts Mortgage Cost
Lenders may assess additional costs, typically in terms of a higher mortgage rate, to compensate for additional perceived risk. Stated income loans are not as risky for lenders as loans requiring no documentation, but if you're concerned about keeping costs down, you may be able to negotiate lower fees if you have good credit and/or a large down payment. Before prequalifying for a mortgage, use free mortgage calculator tools to estimate how much you can afford to borrow, and what kind of down payment you'll need. Mortgage calculators can help you learn what to expect before you start the prequalifying process.  

Prequalifying for a Stated Income Mortgage: Avoiding Temptation
It can be tempting to "stretch" stated income, but it's never a good idea. Lenders often require borrowers to allow permission for the lender to request the last two years of your federal tax returns directly from the IRS. If the amount stated on your mortgage applications varies considerably from your tax returns, questions and subsequent problems may arise.  

Mortgage lenders typically verify information provided by borrowers on about 10% of their loans. Verification can be done after your mortgage closes and you move into your new home. If the lender discovers that your mortgage was approved based on inaccurate information, your mortgage terms could be adjusted or worse, the lender may require full repayment of your mortgage.    

If you're short on cash for a down payment, or have too much debt to comfortably qualify for a mortgage, you may benefit from community homebuyer programs and/or debt management through a HUD approved credit counseling agency.



About the Author
Karen Lawson is a freelance writer with extensive background in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.

Date :2008-08-12