One Step Ahead
Ready to buy your dream home but dread the step of the mortgage application process when you document your income? Don't worry. Business owners and self-employed loan-seekers who have trouble documenting their income history can bypass that onerous step of applying for a loan by opting for a stated income, or no-documentation, mortgage, says Ian Patrick, a lending sales manager at Wachovia Securities in Richmond, Virginia.
"Stated income loans enable lenders to qualify you for a loan without needing several years' worth of income tax returns," he explains. "They are popular with business owners who don't want the trouble of pulling paperwork together or whose tax returns may not be the best depiction of their financial situations."
Rather than analyzing tax returns, lenders usually rely on your credit score and verbal verification with your accountant. But if your credit score or down payment is subpar, the convenience won't come cheap. "Generally, the credit score and ratio (loan amount to property value) requirements are higher than those of a loan with income documentation," says Patrick, who warns that borrowers of large sums or those who have less-than-stellar credit may pay a premium. "For a jumbo-size mortgage, borrowers are generally required to make a higher down payment for a stated income mortgage, typically around 30 percent."
The bottom line? "If you have good credit, a lot of assets or plan on a big down payment, there's no downside," says Patrick. "It can save you a lot of time and hassle."
Jennifer Pellet is a freelance writer specializing in business and finance.