These loans are for people who either would not qualify using lender income or asset guidelines, or who want to avoid providing extensive income or asset documentation.
Documentation type | Lender qualification requirements: |
|---|---|
| Stated-Income | Lender checks credit, verifies seasoned assets and two year employment history and appraises property |
| Stated-Income/Stated-Asset | Lender checks credit, verifies two year employment history and appraises property |
| No-Doc | Lender checks credit and appraises property |
Stated-Income (also known as an ‘easy doc’ or ‘quick qualifier’): The lender does not verify the gross monthly income you put on the loan application. You do not have to provide tax returns, W-2s, or pay stubs. However, the lender will verify a two year employment history, whether you are salaried or self-employed, and will verify your assets and that they are seasoned—have been in your account for sixty days.
Stated-Income/Stated-Asset: The lender does not verify your income or ask for copies of your account statements to verify the funds you listed on your loan application. However, the lender will want to verify employment.
No Doc: The lender does not ask for any information on your income, assets, or employment. These sections of the application are left completely blank. The lender will get your credit report, and an appraisal and preliminary title report—nothing more.
Stated-income loans are often used by people who don’t have a two year income history. For example, if your business has been steadily growing and your income is rapidly increasing you may want to state your income so that you can qualify using your current income, not a two-year average. These loans are also used by self-employed people whose reported income appears low because of certain deductions.
A stated-asset loan may be useful when the funds needed to close on a purchase cannot be verified. You may want to state your assets because you have a large, recent deposit and underwriting guidelines require that those funds have been in your account for at least sixty days. The funds may be coming from overseas, from an unrelated third party, or from under your mattress.
Generally, no-doc loans require a relatively low loan-to-value, or they become very expensive. No-doc loans are useful for people who are retired, temporarily unemployed, or who don’t have a verifiable two year history of self-employment.
One advantage of these loans is simplicity and less paperwork. If your financial situation is very complicated—partnerships or multiple businesses, for example—these loans can be approved more quickly and with less bother than a full documentation loan. You may also appreciate the privacy that stated income provides. I have had partners in law firms and hedge funds whose partnership confidentiality provisions prevented them from providing the partnership tax returns that a lender wanted to review.
The primary disadvantage is that these loans may require a larger down payment if you are purchasing, or more equity in your home if you are refinancing. Also, the terms of these loans—the interest rate, fees, or conditions—are often not as favorable as those attached to a full documentation loan.
An important note: Lenders are becoming more careful with stated-income loans. With these loans you must be stating your income—not what you would like your income to be, or what your lender has told you is needed to be to qualify for the loan that you want.
