If you are self-employed, a freelancer, or an independent contractor, you may have a hard time getting a mortgage with traditional lenders. They usually require you to provide proof of your income, such as tax returns, W-2 forms, or pay stubs, to verify your ability to repay the loan. But what if you don't have these documents, or your income is irregular, variable, or hard to document? Does that mean you can't buy a home?

Not necessarily. There is a type of mortgage that can help you get approved without verifying your income: a stated income loan. A stated income loan is a mortgage where the lender does not check your income by looking at your official records. Instead, you simply state your income on the application, and the lender takes your word for it. Sounds too good to be true, right? Well, there are some catches and caveats that you need to know before you apply for a stated income loan. In this article, we will explain what a stated income loan is, how it works, who can benefit from it, and what are the pros and cons of this type of mortgage.

What is a Stated Income Loan and How Does It Work?

A stated income loan, also known as a no-income verification loan, a no-doc loan, or a liar loan, is a mortgage that does not require you to provide any documentation of your income. You simply state your income on the loan application, and the lender accepts it without verifying it. This can make the loan process faster and easier, especially for borrowers who have nontraditional or hard-to-prove income sources.

However, a stated income loan is not a free pass to lie about your income. You still have to meet certain criteria to qualify for a stated income loan, such as:

- A good credit score. Lenders will check your credit history and score to assess your creditworthiness and risk level. You typically need a credit score of at least 620 to qualify for a stated income loan, but some lenders may require a higher score.
- A large down payment. Lenders will also require you to put down a substantial amount of money upfront to reduce their exposure to loss. You usually need a down payment of at least 20% to 30% of the purchase price to get a stated income loan, but some lenders may ask for more.
- A low debt-to-income ratio. Lenders will also look at your debt-to-income ratio, which is the percentage of your monthly income that goes toward paying your debts. You generally need a debt-to-income ratio of no more than 43% to qualify for a stated income loan, but some lenders may have stricter limits.
- A high interest rate. Lenders will charge you a higher interest rate for a stated income loan than for a conventional loan, because they are taking a bigger risk by lending you money without verifying your income. The interest rate will depend on your credit score, down payment, loan amount, and loan term, but you can expect to pay at least 1% to 2% more than the market rate for a stated income loan.

Who Can Benefit from a Stated Income Loan?

A stated income loan is designed for borrowers who have difficulty documenting their income, such as:

- Self-employed individuals, such as business owners, consultants, or contractors, who may not have consistent or stable income, or who may have complex tax returns that do not reflect their true income.
- Freelancers, gig workers, or independent contractors, who may have multiple sources of income, or who may receive income in cash, tips, or commissions, that are not reported on official records.
- Investors, such as real estate investors, stock traders, or cryptocurrency holders, who may have income from capital gains, dividends, or interest, that are not easily verifiable or predictable.
- Retirees, who may have income from pensions, annuities, social security, or retirement accounts, that are not considered as income by traditional lenders.

A stated income loan can help these borrowers get approved for a mortgage without having to provide extensive paperwork or go through a lengthy and tedious verification process. However, a stated income loan is not for everyone. It has some drawbacks and risks that you should be aware of before you apply for one.

Pros and Cons of a Stated Income Loan

A stated income loan has some advantages and disadvantages that you should weigh carefully before you decide to get one. Here are some of the pros and cons of a stated income loan:

Pros

- It can help you get a mortgage when you have nontraditional or hard-to-prove income sources, such as self-employment, freelancing, or investing.
- It can save you time and hassle, as you don't have to provide a lot of paperwork or go through a lengthy verification process.
- It can give you more flexibility and privacy, as you don't have to disclose your income details or sources to the lender.

Cons

- It can cost you more money, as you have to pay a higher interest rate, a larger down payment, and possibly higher fees and closing costs for a stated income loan.
- It can expose you to more risk, as you may end up borrowing more than you can afford, or defaulting on your loan if your income changes or drops.
- It can limit your options, as not all lenders offer stated income loans, and those who do may have stricter requirements and terms than conventional lenders.

Frequently Asked Questions

Here are some common questions and answers about stated income loans:

Q: Are stated income loans legal?

A: Yes, stated income loans are legal, but they are not as common or easy to get as they used to be. After the 2008 financial crisis, the Dodd-Frank Act was passed to regulate the mortgage industry and prevent predatory lending practices. The act requires lenders to verify the borrower's income and ability to repay the loan, which makes stated income loans harder to obtain. However, some lenders still offer stated income loans, especially to self-employed borrowers and investors, as long as they comply with the law and follow certain guidelines.

Q: How do I find a lender who offers stated income loans?

A: The best way to find a lender who offers stated income loans is to do some research and shop around. You can start by searching online for lenders who specialize in stated income loans, or who cater to self-employed borrowers and investors. You can also ask for referrals from your friends, family, or colleagues who have used stated income loans before. You can also consult a mortgage broker, who can help you compare different lenders and loan options, and find the best deal for your situation.

Conclusion

A stated income loan is a mortgage that does not require you to verify your income. It can help you get approved for a mortgage when you have nontraditional or hard-to-prove income sources, such as self-employment, freelancing, or investing. However, a stated income loan also has some drawbacks and risks, such as higher costs, more risk, and fewer options. You should weigh the pros and cons of a stated income loan carefully before you apply for one, and make sure you can afford the payments and repay the loan.