Texas Hard Money Lender: Stated Income Mortgage in Texas

A stated income mortgage can be a helpful tool in qualifying for a mortgage if you are self-employed or have income that is difficult to verify. Learn what a stated income mortgage is and see if one is a good fit for your home loan needs.

In a traditional mortgage qualification process, the borrower is asked to provide a variety of documentation. Key among these documents are income verification documents. These include W-2s, tax returns for two years, pay stubs, and bank statements. Any additional deposits into a bank account that cannot be verified by paystubs must also be accounted for. Basically the financial assets of the borrower are gone over with a fine tooth comb. This system works well for people who hold traditional jobs with stable income. However, for borrowers who are self-employed, investors, or have a different non-traditional income situation, income verification can be almost impossible.

For borrowers who are unable to furnish proof of income, earn money in a non-traditional way, or who may have a higher than permissible debt to income ratio, a Texas stated income mortgage can be a solution. A stated income mortgage is a home loan where the lender does not verify the borrower’s income via W-2’s or tax returns. The borrower is asked to state their income and then taken at their word.

Stated income mortgages have been given a bit of a bad reputation because they are easy to use to commit fraud. One less than flattering nickname for the loans is “liar’s loans.” This nickname came about because a study of IRS tax records found that in nearly 60% of all stated income mortgages the borrower actually made less than he/she declared as income to obtain the loan. Some politicians are trying to limit access to stated income loans based on the assertion that they could be used for fraudulent purposes.

When Does a Stated Income Mortgage Make Sense?

Despite its less than flattering nickname and somewhat checkered past, there are certain situations when a stated income mortgage is the best home loan option. For many borrowers this type of home loan is the only loan that will give them the capital they need to buy the home they can afford. There are a few situations where a stated income mortgage makes sense.

The first case in which a stated income mortgage is a smart choice is self-employment. This is actually the income situation that the mortgage type was designed for. For many small business owners, independent contractors, consultants, and other self-employed business people, it can be difficult to furnish proof of income to the bank’s satisfaction. Income sources may be considered unstable or there may simply not be a traditional W-2 or pay stub that can be provided. A stated income mortgage allows the business owner to state his/her income and qualify for a mortgage based on that statement.

Another case in which a stated income mortgage is a good option, is for someone who makes his or her living from investments. Take a real estate investor who owns multiple properties all with loans. Even if this investor makes $100,000 a year in disposable income and has the mortgage on each property covered by rent, his/her debt to income ratio might be too high on paper to be given an additional home loan. A stated income mortgage accounts for the actual disposable income this individual has to spend each month, rather than just what the financial situation looks like on paper.

A third situation that would benefit from a Texas stated income mortgage would be in the case of a freelancer or consultant. People who are employed in these fields generally tend to work for more than one company. Their work is also often seasonal or may vary from month to month. During the mortgage qualification process, banks look at 2 months of pay stubs. If it is a slow month, the amount of pay may not reflect the actual amount that borrower earned and therefore he/she may not qualify for a high enough amount, if at all. In addition, banks require that a borrower works for a company for a year or more before that income source is considered valid. A freelancer or consultant often works for many different companies but only one or two on a permanent basis. Therefore the actual income of the borrower could be $200,000 but only $50,000 is counted as income by the bank. A stated income mortgage allows the borrower to use their actual income amount to qualify for a mortgage.

If you are in an employment situation where a stated income mortgage makes sense, find a broker to get started.

Most traditional banks do not offer Texas stated income mortgages as they are considered higher risk loans. Brokerage firms and smaller banks often have programs that will work with borrowers who need a stated income mortgage.