The number of Stated Income and No Documentation loans (No Doc) have increased dramatically in the past few years. In some areas of the country, such as Washington D.C. or New York City, 75% of mortgage company loans are Stated Income or No Doc loans. This is because property values are so high, people could not qualify just on their verifiable income. Consider this. A townhouse in Washington D.C. may cost $700,000. How many individuals can afford that on salary alone? Other sources of income must be taken into consideration such as: retirement funds, stocks, bonds, bank statements, liquid assets, and more. The increase in the number of self-employed individuals, or people who combine jobs and self-employment is also on the rise. The result has been a strong infusion of Stated Income and No Doc loans into the mortgage industry.
Common Scenarios for Stated Income or No Doc Loans
Self-employed individuals are the obvious contenders for Stated Income and No Doc loans. Often, self-employed individuals write off expenses and claim as little as possible in net income. In fact, their income is larger than it appears on their tax statement. In addition, anyone with a unique income, employment, or asset situation may want to apply for this type of loan. For example, people who live on tips, are paid commission, or have other forms of compensation at their jobs will want to apply for this type of loan. Also, individuals who have recently changed jobs, within the last 12 months, may need this type of loan.
Stated Income Loans
Though they are often referred to in the same breath, Stated Income loans are different than No Doc loans. Stated income means you have a job which can be verified. For example, you draw W-2 income from a source outside of self-employment, or, your self-employment situation is easily verified through bank statements or other documentation.
No Doc Loans
These types of loans do not require documentation of employment or assets. All that a lender needs is your name, social security number, address, and credit report. The loan is granted based on a solid credit history and a high credit score. Another option for this type of mortgage is a No Income No Assets (NINA) mortgage. Applicants are not required to write down or document income or assets for a NINA. The applicant simply states where he or she is employed and where he or she banks. Because no documentation is required, the interest rates are higher.
Credit Scores
Stated Income and No Doc loans require less documentation from the lender. Therefore, credit scores must be high in order to obtain one. Basically, a high credit score is a lender's guarantee that the loan will be repaid. If credit scores are not high, the borrower may still obtain a loan, with a down payment and/or pay a higher interest rate.
Interest Rates
One general rule of thumb for Stated Income loans is the less documentation you provide, the higher the interest rate. Basically, the more income and assets a buyer can prove, the better. Acceptable documentation for some lenders includes checking and savings account statements, retirement funds, stocks, bonds, and mutual funds. In some cases lenders will even accept deposits to accounts over the last 12-24 months and average them out as evidence of monthly income. In the latter case, this is a fully documented loan and an applicant may obtain a better interest rate.
Down Payment on Stated Income and No Doc Loans
Keep in mind the lender is trying to minimize risk with these loans, so a higher down payment of say 5-10% is often essential for a lower interest rate. If you have a solid credit history, you can still obtain a loan without a down payment, the borrower merely pays a higher interest rate then the lowest going rate.
My company, Breakwater Mortgage in Virginia Beach (
http://www.breakwatermortgage.com), offers Stated Income and No Doc loan products. Many banks, and some mortgage companies do not. If you are the type of individual who needs these mortgage products, ask your prospective lender if they handle these loans. If not, call me at 1-877-45 BREAK and I will be happy to assist you. Currently Breakwater Mortgage writes mortgages in Virginia and North Carolina.
Stated Income and No Doc loans are the perfect loan programs for small business owners, self-employed persons, or any other individuals who cannot prove in writing all of the income or assets necessary to purchase the home of their dreams.
About the Author
Kevin Onizuk has been in the mortgage business since 1994 and co-founded Breakwater Mortgage in 2003. His background covers many aspects of lending including mortgages, home mortgages, mobile homes, car loans and personal loans. Breakwater's mission is to provide the highest level of service in the mortgage industry.
