It’s a common misconception to think that the interest rates on stated asset loans are unaffordable. This came about even before the housing crisis. Any lender that was willing to stick their neck out for a “risky” loan was known to charge high interest rates. Then the housing crisis occurred and the regulations were laid down. Lenders were no longer allowed to charge crazy high interest rates. They had to ensure that all fees were in line and that every borrower could afford the loan they were being provided. This is not to say that interest rates today are not higher on alternative documentation loans, such as stated income or asset loans, but they are not unaffordable because the guidelines don’t allow that any longer.
What Drives the Mortgage Interest Rates?
Just as with any loan, there are many factors that determine your interest rate. For starters – your credit score plays a vital role. If you have risky credit, meaning that your score is lower than 680 and you have late payments in the last 12 months, your interest rate is going to reflect that. On the other hand, if you have great credit and no late payments, you will likely be eligible for a lower interest rate. Other factors that drive the rates include:
- How you verify your income – If you are not verifying your income the traditional way, with paystubs and W-2s or tax returns, you are risky and will pay a higher interest rate
- How you verify your assets – If you are stating your assets for one reason or another, you have to take a higher interest rate in exchange for the level of risk you provide the lender that he could forgo if you provided bank statements
Other factors include the term of the loan, whether fixed or adjustable, and how long the loan will last. In general, 15-year terms have lower interest rates than 30-year terms because they are less risky.
The bottom line is that every lender has a say in what interest rate they charge. They will gauge your level of riskiness and determine what interest rate makes up for that risk. Because most lenders must keep stated asset loans on their own books, they have their own discretion when it comes to guidelines and interest rates charged.
If you need a stated income or asset loan, make sure to shop around with a variety of lenders as each one will likely offer a different program and different costs. Don’t assume you have to jump at the first lender that offers you a loan – there are many lenders out there vying for your business. Give each one a chance so that you can maximize your savings and success as a homeowner.