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Mortgage Stated Income - How to Apply for a Mortgage Stated Income Loan

special tips to consider

Mortgage stated income loans are typically designed for the self-employed individual and tip earners who have trouble proving to banks how much they make in a given month. They have trouble providing sufficient documentation of earnings. This loan product is typically for borrowers who work on commission, who earn money in tips, and who also are small business owners. It may also be used for business equipment leasing where business owners state on the loan application their projected income from average commercial transactions.

Mortgage stated income loans are commonly referred to as “liar loans” because loan applicants can project their income; a stated income may be wholly subjective. With the fallout from the sub-prime mortgage crises, these loans have gained a bad reputation. Although this may be true in some instances, mortgage stated income loans still represent the most suitable product for borrowers who need to establish lending credit with a banking institution. Even though some debtors may have disproportionately projected their incomes in the past, mortgage stated income loans may still be appropriate for today’s credit market. Collateral is still necessary for most loan packages; and borrowers may use their retirement plans and other assets to demonstrate their ability to repay the loan. Here are a few steps to consider as you prepare to apply for a mortgage stated income loan.

Step 1: Calculate Your Monthly Income
Calculate how much you make by the hour and multiply the hourly figure by how many hours you work in a day. Next, multiply the result by the number of days you work in a week. Once you get the second figure, multiply it by 52 weeks. This will give you an annual figure. To calculate your monthly figure, divide the annual figure by 12. To this monthly figure, add any interests or additional monthly revenue from your retirement plan, money market savings account, rental income, income from a second job, extra money earned from sales of personal belongings, and projected income from any future or potential earnings such as overtime differentials. Total your figures and include the monthly income from your job. You now have a figure that best represents what you earn on average in a month. If you still need more help with determining your monthly income, open your Internet browser and type in “income calculator” into the search box, choose one of the web results, and follow the steps.

Step 2: Research the Best Loan Package for You
Mortgage stated income loans come in a variety of packages. Some loan options include a 30-year fixed rate, with five percent equity. Other packages include a seven-year adjustable rate mortgage. Some banks offer a Home Equity stated income mortgage loan. Mortgage stated income loans can be used for single-family dwellings, townhouses, condos, and some high-rise properties. Depending upon the collateral, they may also be used for investment properties.

Step 3: Check Your FICO Score and Credit Report
Borrowers must have a great FICO score and a near perfect credit history. Most lenders and credit agencies want to know your FICO score. At a time when all you needed was just a credit report from one credit reporting agency, now lenders want to pull from all three reporting agencies to either average your FICO scores or choose the lowest one to set a higher interest rate on your loan. To receive a mortgage stated income loan, borrowers must have at least a FICO score of 620 with five credit accounts in good standing. If a borrower has a bankruptcy or foreclosure on their credit report, then both items must be discharged. Borrowers must attempt to reestablish good credit. They must also have worked for their employer for at least two years. They must be prepared to put down at least five percent towards closing costs. When in doubt about some areas of your credit report and to determine how you can use it to apply for a mortgage stated income loan, contact a Certified Mortgage Planning Specialist for help.

Step 4: Compare Closing Costs Terms
Research the guidelines for closing costs for each lender you are considering. Determine if there are special discounts. You don’t want to get to the end of the process and realize that the closing costs are too expensive for you to move forward with the end of the process. Ask your lender for a Good Faith Estimate of Closing Costs. The estimate outlines what you will have to pay in terms of the terms of the loan, the interest rate, and closing costs. Know the difference between the lender’s closing costs and the closing costs to you. The lender has to pay attorney fees and government taxes and other types of regulatory fees. There are processing fees, broker fees, origination fees, lender office and administrative costs, appraisal fees, fees to pull your credit report, and other local government tax related fees such as tax searches and title insurance and county tax assessments. The Good Faith Estimate of Closing Costs is important because you need to know exactly what your share in the costs will be.

Step 5: Gather Your Mortgage Loan Documentations
You must provide documentation of your income, even if it is projected. You must have at least two years of your W2 forms. You need your last two paycheck stubs that cover exactly one month. You need two years of your 1040s. If the majority of your income is coming from self-employment, commissions, and overtime, then you will need all 1040 schedules. If you are a small business, then you need two years of your tax returns; you will also need to provide an income statement. The most important documents you must provide for proof of any additional income are documents such as monthly income from social security, disability, and pension. Some lenders also require at least two months of bank statements, trust accounts, savings bonds, retirement plans, real estate income projections, value of collateral such as a car or boat, list of debts, and twelve months of voided checks for rent of an apartment or house. You must provide a copy of your identification card or driver’s license number. Any information you believe is important to your mortgage stated loan application may be necessary to getting approved. So use it. This includes noting on your application that you have graduated from college. This shows the lender some sense of completion in your personal life. The last few documents and items you must provide are proof of prior rental agreements, landlord information, insurance details, and realtor name and number. Once you have gathered all of your documents, apply for a mortgage stated loan through the lender of your choice.

Special Tips to Consider

1. If you don’t have all of the requirements to apply for a mortgage stated loan, then consider paying cash for the home.

2. You may have to wait until you have two good years of solid income. Even if you are self-employed, most lenders will loan to a borrower if the borrower can prove at least two years of average monthly income. You should be able to pay at least three times the monthly mortgage. Calculate your monthly income and multiply it by three. The bank will expect you to be able to make this payment.

3. Get a job where you can actually earn a salary. Salaries are more stable. Lenders can look at your monthly salary and better estimate your ability to pay.

PT Money, LLC: Personal Finance by PT

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