Stated Income Second Mortgages: Understanding No Income Verification Loans

Posted by Nick Niesen on October 29th, 2010

What is a stated income second mortgage? A stated income second mortgage is one that does not require the borrower to prove income stated on the application. This is most advantageous to self employed and contract workers who receive a 1099 instead of a W-2 as they would have a difficult time proving their income. Stated income mortgage loans are the most commonly used and usually the least expensive of the no documentation types of mortgages.

Mortgage lenders understand that it is difficult for individuals who are self-employed or operate a one-person firm to verify their income. Different types of no income loans are offered including state income or no income verification loans.

Inquiries should be made to a loan officer as to the types of reduced documentation information required to secure the loan. Lenders may require anywhere from 3 to 6 month reserve for principal interest taxes and insurance (p.i.t.i.). If the monthly p.i.t.i. payment is $ 2,000 a month; the lender may require proof of assets anywhere from $6,000 to $ 12,000.

A fixed rate second mortgage is a way to refinance higher adjustable rate second mortgages or home equity loans. If the interest rate on the second mortgage is below the adjustable rate, lower payments monthly would be a benefit of the second mortgage.

Home equity loans can serve a number of purposes. They can be used to reduce credit card debt, consolidate high interest credit lines, make home improvements and pursue educational endeavors.

Stated income lines are available to all borrowers but the lenders usually require the borrower to have a minimum credit score. The higher the credit score the better the interest rate offered.

A stated income second mortgage loan is suitable for borrowers who have no verifiable income and have assets to meet minimum reserve requirements of the lender. The stated income on your application must be reasonable in terms of your assets. Qualifications for no income verification loans require the borrower to have a minimum credit score. While it varies from lender to lender, most lenders will require the borrower to have a credit score above 580.

The lower the credit scores the higher the interest rate the lender will require. If your credit score is high you may be able to take advantage of a fixed rate second mortgage before the interest rates increase above 7%.

Consideration is usually given to the tax consequences of the different types of loans. A tax adviser should be consulted before a borrower commits to a mortgage whether he is a first time buyer or an experienced homeowner refinancing.