Stated Income Mortgage in Texas

A stated income mortgage can be a helpful tool in
qualifying for a mortgage if you are self-employed or have income that is
difficult to verify. Learn what a stated income mortgage is and see if one is a good fit for your home loan needs.

In a traditional mortgage qualification process, the
borrower is asked to provide a variety of documentation. Key among these
documents are income verification documents. These include W-2s, tax returns
for two years, pay stubs, and bank statements. Any additional deposits into a
bank account that cannot be verified by paystubs must also be accounted for.
Basically the financial assets of the borrower are gone over with a fine tooth
comb. This system works well for people who hold traditional jobs with stable income.
However, for borrowers who are self-employed, investors, or have a different
non-traditional income situation, income verification can be almost impossible.

For borrowers who are unable to furnish proof of income,
earn money in a non-traditional way, or who may have a higher than permissible
debt to income ratio, a Texas stated income mortgage can be a solution. A stated
income mortgage is a home loan where the lender does not verify the
borrower’s income via W-2’s or tax returns. The borrower is asked to state
their income and then taken at their word.

Stated income
mortgages have been given a bit of a bad reputation because they are easy
to use to commit fraud. One less than flattering nickname for the loans is
“liar’s loans.” This nickname came about because a study of IRS tax records
found that in nearly 60% of all stated
income mortgages the borrower actually made less than he/she declared as
income to obtain the loan. Some politicians are trying to limit access to
stated income loans based on the assertion that they could be used for
fraudulent purposes.

When Does a Stated Income Mortgage Make Sense?

Despite its less than flattering nickname and somewhat
checkered past, there are certain situations when a stated income mortgage is the best home loan option. For many
borrowers this type of home loan is the only loan that will give them the
capital they need to buy the home they can afford. There are a few situations
where a stated income mortgage makes
sense.

The first case in which a stated income mortgage is a smart choice is self-employment. This
is actually the income situation that the mortgage type was designed for. For
many small business owners, independent contractors, consultants, and other
self-employed business people, it can be difficult to furnish proof of income
to the bank’s satisfaction. Income sources may be considered unstable or there
may simply not be a traditional W-2 or pay stub that can be provided. A stated income mortgage allows the
business owner to state his/her income and qualify for a mortgage based on that
statement.

Another case in which a stated
income mortgage is a good option, is for someone who makes his or her
living from investments. Take a real estate investor who owns multiple
properties all with loans. Even if this investor makes $100,000 a year in
disposable income and has the mortgage on each property covered by rent,
his/her debt to income ratio might be too high on paper to be given an
additional home loan. A stated income
mortgage accounts for the actual disposable income this individual has to
spend each month, rather than just what the financial situation looks like on
paper.

A third situation that would benefit from a Texas stated income mortgage would be in the
case of a freelancer or consultant. People who are employed in these fields
generally tend to work for more than one company. Their work is also often
seasonal or may vary from month to month. During the mortgage qualification
process, banks look at 2 months of pay stubs. If it is a slow month, the amount
of pay may not reflect the actual amount that borrower earned and therefore
he/she may not qualify for a high enough amount, if at all. In addition, banks
require that a borrower works for a company for a year or more before that income
source is considered valid. A freelancer or consultant often works for many
different companies but only one or two on a permanent basis. Therefore the
actual income of the borrower could be $200,000 but only $50,000 is counted as
income by the bank. A stated income
mortgage allows the borrower to use their actual income amount to qualify
for a mortgage.

If you are in an employment situation where a stated income mortgage makes sense, find a broker to get started.

Most traditional banks do not offer Texas stated income mortgages as they are considered higher risk loans.
Brokerage firms and smaller banks often have programs that will work with
borrowers who need a stated income
mortgage.