Stated asset loans used to be a thing of the past. Once the housing crisis occurred, every lender clammed up and only offered straightforward, fully verified loans. This is understandable given the amount of foreclosures and defaults banks went through after providing loans to people that they really had no idea if they could afford it or not. Fast forward to today, however, and you can slowly start to see more lenders offer alternative documentation loans. This is the new name lenders prefer to use, rather than subprime, since the connotations with subprime are so negative. These alternative documentation loans provide a variety of options for borrowers with less than normal income and assets. The problem is, however, that you will have certain hoops to jump through in order to get the loan.
What is Alternative Documentation?
Let’s start by defining alternative documentation. It basically means that you are not providing the standard paystub, W-2, and tax return documentation that a majority of borrowers provide. These documents might not render you an approval if you are a full commissioned employee or you own your own business. This does not mean you cannot afford a loan, it just means that on paper, you look like you cannot afford it. So what is the alternative? One of the below types of loans:
- Stated Income, Verified Asset – This loan requires you to state your income rather than verify it, but fully verify your assets with your bank statements
- Stated Income, Stated Asset – This loan program allows you to state your income and your assets, if you are unable to provide appropriate documentation to show the assets you have available
What Requirements do you Have to Meet for Stated Asset Loans?
In the case of either the SIVA or SISA loan, you have to meet certain requirements. First and foremost, you have to have a high credit score. What score each lender requires is up to them, so there is no benchmark for you to measure yourself up to – you have to shop around. One lender might determine that a credit score of 700 or higher is necessary to demonstrate financial responsibility while another might only require a score of 680. Typically, anything lower than 680 is hard to come by with these alternative documentation loans.
In addition to your high credit, you have to have a good housing history. If this is your first home, you will have to provide a rental history for at least the last 12 months. What the lender needs to see is that you can responsibly make your housing payments without any issue. If you are a renter right now, the landlord will have to fill out a Verification of Rent form in order for it to count as your housing history as it has to be official and from a third party.
Last, lenders still need to determine that you are employed and/or own a business. There is several ways to do this:
- Verification of Employment – If you are employed by someone, the lender will verify with them the dates of your employment, that you are still employed, and that you will be employed for the foreseeable future.
- CPA Letter – If you are self-employed or receive large amounts of your salary from commission, you will need a letter from your CPA on his letterhead stating that you are in the business you say you are in and document how long he has been doing your taxes and/or accounting for you.
- IRS Form 4506 – In some cases, not all, the lender will send away for a tax transcript, which can only be done if you fill out IRS Form 4506 granting the lender access to your transcript. This is another way the lender determines your validity.
Keeping it Real
Keep in mind that when you state your income or assets, you need to do so with the average range for your industry in mind. For example, if you say you are a waitress and make $150,000 per year, the lender is not going to believe you. He will either decline your loan altogether or decrease your income to the amount that is standard for the industry in your area. They need to keep the income as feasible as possible so that they can determine if you can afford the loan without documenting your income in the traditional way. The same is true for your assets – if you are a waitress and say you have $200,000 in assets, you will have to prove where that money came from because it obviously did not come from your job unless you were in that position for many years.
Stated asset loans along with stated income loans are not nearly as hard to come by any longer. A variety of lenders offer them and with a little diligence you can find them. Even if one lender turns you down for a stated income or asset loan, there are many other lenders out there. Make sure that your credit score is in good standing and that you have explanations for the amount of income and assets you state and you should be able to find a lender willing to help you with your mortgage.