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| Stated Income Mortgages For Self Employed Homebuyers |
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| Stated Income Mortgages: Cause Of The Meltdown Or Scapegoat? Many experts are blaming the housing crisis and the mortgage meltdown on lax underwriting. Stated income mortgages bore a lot of the blame. This is understandable. With this type of loan it was very easy for the borrower to misrepresent, or outright lie. The main area of the misrepresentation was "business for self". The borrower would present a business registration, some business cards and letterhead, and that was fine with the underwriter. Meanwhile, the borrower's true employment could be something else, such as, an office worker or an assembler in a factory. The true income could be $37,000 a year, but to qualify for the mortgage the borrower needed $60,000. Thus he went the route of stated income. Generally, a lender, even with a stated income mortgage, would require proof of cashflow. The borrower would then provide bank statements for 6 months. When and if the borrower cannot show a cashflow, he would opt for a "no doc or NINA" loan. He doesn't have to provide anything but a good credit score and a down payment of 20% to 30% of the purchase price. As long as the credit score was good enough, ideally, 740 or better, the deal got funded, no questions asked. There is no proof that stated income loans were the downfall of the mortgage market. The intent of the stated income mortgages was to make it easier for an honest, creditworthy individual, with a sizeable down payment to own a home. The trouble started with the sub-prime mortgages. There were down payments of 0% to 3.5%. In addition to this, the credit scores were lowered to mid-500. It was only a matter of time before the sub-prime lenders would be destroyed by their own greed. |
| Stated Income Mortgages For Self Employed Stated income loans are generally made to self employed borrowers. However, they is a growing number of people that get their income from investments, or are on commission. Some of these borrowers can not prove their "true" income by using a tax return. Others choose not to prove their income. They simply want their privacy, and are willing to pay a price. These stated income mortgages are sometimes referred to as "low docs" and "no docs" loans. Wealthy borrowers are usually placed in "no ratio" loans. These borrowers have complex investments, pensions, off-shore accounts, or foreign income. Some are going through a divorce, or settling an estate. With a "no ratio" mortgage the borrowers do not declare any income,or debts. However they do provide a list of assets to the lender. Cash in the bank, stocks, bonds, real estate, ownership in businesses, art, jewelry, boats and vehicles, all of these will impress the most conservative of bankers. No doc or NINA (no income no asset verification) mortgages are for borrowers with excellent credit who prefers their privacy over money. These loans require the least paperwork. A high credit score, around 750 or better, and a substantial downpayment, say 35%, and the borrower can purchase a house. The lender would order an appraisal just to confirm the market value of the house and the deal is finalized. These mortgages are generally 2% to 3% higher than conventional mortgages. So, who would pay extra to protect their privacy and why? My first reaction is negative. I am thinking that the person is a drug trafficker, or a mobster, or money launderer, or someone who had a divorce and hid some of the assets. In reality the answer is very simple. Privacy is an issue, and some people do not want to take the chance and have all their business all over the internet. They have the money and they are willing to pay for their small bit of privacy. It's like any consumer product. Some people pay $39 for a pair of jeans, others pay $500. |
| Help For The Self Employed: How To Get A Mortgage I wish someone can explain this to me. How come the owner of a business has a hard time getting a mortgage, but any one of his 25 employees can easily get a mortgage? It has always been a challenge to get a mortgage when you are self-employed. Today's mortgage climate makes it even tougher. But it is still possible to get a good mortgage, even if you are not on a W-2. There are some areas you should focus on. Credit. A good credit score helps in getting a mortgage. A score of 720 or better is ideal. And it is even more important when you have a problem confirming and proving all your income. Get rid of your consumer loans, and pay down your credit cards. You will need cards for the business but keep the outstanding balances low. Credit. A good credit score helps in getting a mortgage. A score of 720 or better is ideal. And it is even more important when you have a problem confirming and proving all your income. Get rid of your consumer loans, and pay down your credit cards. You will need cards for the business but keep the outstanding balances low. Down payment A sizable down payment works in your favor. It reassures the lender that this borrower is unlikely to simply give up and walk away if there were a couple setbacks. It impresses a lender when you can show that you saved 15% to 20% for your down payment. Do not use a gifted down payment from your parents. This screams "mommy's boy" or "daddy's little girl". Make sure you have enough money for the closing costs. Having some cash reserves will also impress the lender. Co-signor. If you can get someone with good credit to co-sign for you, that would be great. The person should have excellent credit and verifiable income. A close relative is always a good candidate. Someone who has assets, including a house, stocks, bonds and a retirement savings account would be impressive. Co-borrower. Sometimes you might have to give the application a little nudge. A co-borrower with good credit plus a verifiable income is a tremendous help. This person could be someone who wants to live in the house. Consider asking your significant other, a sibling, or a close friend. The friend should be someone you can trust. Someone from high school or college, a fellow worker or a close buddy from the armed services, or any organizations you might belong to. Seller Financing Ask the seller of the house if he is willing to hold the mortgage note. Loan against assets. You might want to use some of your assets as collateral. If you have a stock portfolio and some bonds, and life insurance you can put these up as added security. Commercial Loan Try to obtain a commercial loan. If you have a solid business relationship with a lender, asking for a loan is a good option. It is better to ask for your loan in person. The internet is great for research, but because of the complexity of a self-employed mortgage, face to face is better. Organise your records and be prepared to present lots of paperwork. A valuable piece of information is a housing payment history. If you pay rent ask your landlord for a letter of recommendation. In addition, you will want to include the cancel checks or bank statements to prove how much rent you paid. And in closing, give yourself plenty of time to get the deal done. |
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