Often referred to as “limited doc”, “no doc”, “easy doc”, etc., these loan programs have at least one thing in common: the income reported on the loan application does not have to be verified.

Stated income loans were born nearly two decades ago to assist self-employed borrowers qualify for a home loan. It is a commonly accepted notion, that self-employed individuals have the ability to minimize their reportable taxable income through certain accounting practices which are available to them. While this is wonderful from a tax standpoint, it can be a hindrance when attempting to qualify for a home loan. The mortgage industry recognized this and responded with the stated income loan. Conceptually, it was designed to give “income credit” to the self-employed borrowers who were able to creatively reduce taxable income.

The stated income loan was quickly embraced by both lenders and borrowers and soon was expanded to include employed borrowers who, for various reasons, could not receive full credit for income they were generating, such as sporadic overtime and bonuses, auto allowances and even second jobs.

Understanding that the risk factor in a stated income loan is greater than a loan that requires strict adherence to standard lender underwriting guidelines, it is no surprise that stated income loans tend to have interest rates slightly higher than fully documented loans. This interest rate premium is typically, 1/8 % to 1/4 % higher than a fully documented loan.

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