Are There Stated Income Loans for People with Bad Credit?
By Gina PogolMortgage Credit Problems Columnist
Chris Asks: Dear Gina, I am trying to get a mortgage but am having a hard time proving my income. Can I still get a stated income home loan? My credit is pretty bad and I heard that there is a new form you have to sign that can get you in trouble if your income is wrong.
Gina Says:
Dear Chris,
First, you are going to have a very hard time getting a stated income mortgage unless you have a lot of equity or a really big (50%) down payment. Lenders are very leery about making these loans. Second, I don't know how bad your "bad" credit is but if it's truly bad you are probably looking at what's called "hard money" and it's expensive--about 5 points up front and an 11% rate.
But if you need to do a stated income loan and can get one from a lender, do it for the right reason. There are good reasons and bad reasons for for needing a stated income loan. A good reason is that you truly earn the money but it wouldn't be counted under traditional lender guidelines. For example, contributions from roommates (which you had better declare as income on your taxes or you're toast), income from a new sales job or business, child support that comes in sporadically and sometimes in cash--or your business is just weird--you make tons one year, then have a lot of expenses the next, and Fannie Mae only lets you use the lowest year. These are decent reasons for having to do a stated income loan. A bad reason is that you don't really make that much money but you want the house anyway, and you'll deal with making the payments later.
Today's lenders require that you sign an IRS Form 4506 when you get a stated income loan. This gives them the right to obtain your income information from the IRS and if it doesn't match your loan application you could find yourself in trouble. That's a good reason for declaring the rental income from your roomies. If you default on your mortgage, and your income wasn't stated honestly, you're even looking at loan fraud--a federal offense. So honesty is the best policy--these loans weren't intended for liars, no matter what your Senator says when trashing lenders, borrowers, and the mortgage industry.
Good luck and thank you for writing,
Gina
About the Author
Gina Pogol has over a decade of mortgage lending experience, in addition to practice as a paralegal for a bankruptcy attorney, and as a business credit consultant for Experian. She is also certified to underwrite Fannie Mae loans. She earned her BS in Financial Management from the University of Nevada.
All information provided “as is” for informational purposes only, and is not financial advice. MortgageCreditProblems.com, its affiliates, and any of the independent providers of information on this site shall have no liability for any informational errors or incompleteness, or for any actions taken in reliance on information contained herein.
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