A stated mortgage used to be more common and at one time most of them completely vanished from the lending landscape. A ‘stated’ mortgage simply means the degree of verification the lender applies when reviewing a loan application. A stated loan is one where certain aspects of the information listed on the loan application are not verified by third parties but instead still used as part of the approval process.
There are three basic levels, fully documented, or full-doc, stated, and no-doc. No document loans mean income nor assets are verified. The lender approves the loan without the benefit of verifying such important information. Credit scores are still pulled but assets, employment, and income are left blank or otherwise not verified at all. In today’s environment, one would be hard-pressed to find a lender that still offers a no-doc loan.
A full-doc loan is fairly straightforward. It’s a loan that’s fully documented and includes items within the loan file such as paycheck stubs, income tax returns, bank statements, and the like. Almost every loan made today is a full-doc loan. As such, they are also the least risky compared to other types of mortgage programs providing the best rate and terms for consumers who apply for a fully documented loan.
A stated mortgage is one where the income and assets are still listed on the application, but the lender doesn’t verify the income directly. No paycheck stubs, no verification forms sent to the employer, and no tax returns. Instead, just the information that appears on the application is used for approval. If someone says monthly income is $10,000 per month, that’s what the lender uses when qualifying. This is referred to as a ‘stated income’ loan. Another type of stated documentation refers to assets, or the funds available to close the transaction. Such funds include bank statements or investment accounts.
You can figure out that a stated loan will be a bit riskier for the lender which would then result in higher rates and fees and a larger down payment compared to today’s 3-5% down loan programs. So why would anyone take out a stated loan and why would a lender issue one? A borrower might have inconsistent monthly income and is very likely self-employed. Self-employed applicants get paid for work performed. If a business has a slow month, it can affect the average monthly income used to qualify someone for a mortgage. Instead, the applicant adds up annual income and divides it by 12 to arrive at a qualifying monthly amount. Lenders can introduce a loan program designed to address this particular market.
Another type of stated loan is often referred to as a ‘bank statement’ loan. Instead of paycheck stubs, W2s, and tax returns, lenders will ask for the most previous 12 months of bank statements for review. The bank statements can show income coming in as deposits. Employees can get paid on the 1st and the 15th for example, but self-employed borrowers typically don’t have such regular deposits. With a bank statement loan, the lender will average the business income listed on the statements and use that amount for qualifying. Again, these loan types will command a higher qualifying credit score. If you’re not sure if a stated loan is best for your situation, your loan officer will be able to provide solid advice as to whether or not you should look at that option based upon your current financial situation.