Stated Income Loans Explained

A stated income loan is a unique lending instrument that can benefit many different borrowers. Stated income loans are very commonly used by self-employed people to qualify for the loan that they need. Here are the basics of stated income loans and how they work.

How Stated Income Loans Work

With stated income loans, the borrower does not have to prove that they make a certain amount of money to qualify for the loan. The borrower goes to a stated income lender and fills out the loan application. On the application, they ask you for your income amount. You simply write in the amount of money that you make and the lender takes you at your word. They will not have to call your employer and check out your employment status. They will not require you to provide them with pay stubs or a W-2 like many other lenders will. 

Stated Income Loan Requirements

Although they will not verify your income, there are still requirements that you have to meet with this type of loan. You will have to meet certain credit requirements in order to qualify. Each lender will still want to have a look at your credit report and make sure that everything looks good in that regard. If you have bad credit, you may not be able to qualify for a stated income loan. 

In addition to having a good credit score, they will also want to see that your debt situation is sufficient for their requirements. They will look at your debt situation and evaluate it in conjunction with the amount of income that you claim that you make. They use debt-to-income ratios in the same way that a standard lender does. If your debt-to-income ratio is not in line with what they require, you will not be able to get the loan. 

Benefits of Stated Income Loans

  • Faster processing- With less paperwork and verification involved, stated income loans can be a bit faster than a traditional mortgage. If you are in a hurry to get the money to buy a certain property, this type of loan may be able to give you an advantage over a traditional loan.
  • Self-employed assistance- When you are self-employed, you will often find it difficult to locate a lender that wants to work with you. Lenders look at self-employed individuals as a bigger risk because they do not always have a steady income. With stated income lenders, they will simply take you at your word regardless of what your work situation is. You will still have to have good credit, but you can get over a huge hurdle that many self-employed people face. 

Disadvantages of Stated Income Loans

  • Higher interest rate- When you agree to this type of loan, it will often come with a higher interest rate than another type of loan. 
  • Trouble locating loans- Stated income loans are not offered by every lender and they may be difficult to find in your market. 
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