Non- QM Loans: Stated Income Program Loans

What Is a Stated Income Loan?

Under a stated income loan, a borrower tells the lender what their income is. Rather than going through documentation such as income statements, W2 forms, and tax returns, the lender takes the borrower at their word. Stated income loans are fast-tracked loans that are ideal for investors, but they have become illegal for consumers to use, due to their high risk.

For self-employed individuals and entrepreneurs, it’s often difficult to produce documentation regarding income. A small business owner may have cash going in and out regularly that is tied into their business. An entrepreneur may have an aggressively adjusted AGI because they put a significant amount of money towards tax shelters such as IRAs, HSAs, and ESAs.

Stated income makes it possible for individuals who don’t have clear income pictures to acquire a short-term loan for real property. But because these loans tend to be high risk, they’re generally short-term, at higher than average interest rates, and difficult to procure. Stated income loans are extremely vulnerable to fraud. 

What Does a Stated Income Loan Require?

If a stated income loan doesn’t verify your income, what does it verify? 

• Cash reserves. Most borrowers who get a stated income loan are going to need to put down a significant down payment, in addition to being able to prove that they have cash in the bank. A stated loan might require 50% down.
• Good credit scores. Stated income loans require that the borrower has maintained good credit in the past, showing that they are a low-risk borrower.
• Consistent income. While a stated income loan isn’t going to verify your income, it does require that you have consistent income. Most stated income loans will require that you have had consistent income for around two years.

In short, with a stated income loan, a lender has to be certain that you will be able to repay the loan. Since they can’t rely upon their income, they will look at the amount of cash you have in the bank instead. And since it is a higher risk loan, interest rates are likely to be higher than conventional loans.

Should You Get a Stated Income Loan?

A stated income loan is ideal for real estate investors and professional house flippers. These are individuals whose real income picture may be very different from reality. On paper, a real estate investor may seem over-leveraged, with too much of their money tied up in real property. In reality, a real estate investor’s properties are still making them money, even if their money is tied up in it.

If you are in a solid financial situation, with good credit, and an excess of liquid cash, a stated income loan is a great way to help fund a new property. But conventional loans are still better in nearly every other way if your income can be verified. Bank statement loans may also offer flexibility if you are bringing in a regular amount of income every month.

Stated income loans have their place, but it is a niche place that’s primarily for those who are already invested in the real estate market. 

Can You Get a Stated Income Loan to Buy a Home?

In the past, stated income loans could be used to purchase a residential, owner-occupant home. This is no longer legal. So what can you do if you’re a self-employed individual or an entrepreneur who wants to purchase a home?

Bank statement loans are similar to stated income loans. But rather than simply taking you at your word regarding your income, a bank statement loan goes over your bank statements to determine how much you’re making. If you have many income sources rather than a W2, a bank statement loan can help.

For investors, a stated income program is an excellent way to acquire an investment property without having to put up all the money yourself. If you aren’t able to prove your income through documentation, you can still get a loan towards a property that you’re interested in flipping or renting out. However, you need to be an excellent candidate: you need a good credit score, stable income, and a lot of cash in the bank.