Originally developed to support self-employed borrowers earning more income than their tax returns otherwise suggested, stated income loans became the most popular (and widely abused) type of mortgage from roughly 2002 through 2007. Following the near collapse of the financial system in 2008, "no income verification" loans were exiled from the marketplace. While this correction was long overdue in the example of someone with earnings of $2500 per month stating income of $15,000, it has unfortunately blocked millions of would be borrowers whose income and overall financial status fully support their ability to repay a loan. Fortunately, there are now some excellent options for borrowers who fall into this category. And this includes self-employed, salaried, and even unemployed or retired borrowers.
New Stated Income Options
In contrast to previous "stated income" loans where borrowers could literally state whatever income figure they needed, current stated income options require verification of a potential income source. The source can be personal savings or investments, or even those of a family member co-signing on their behalf. Self-employed borrowers controlling substantial assets can now leverage their companies' business accounts to underwrite their financing. The same applies to anyone with significant personal assets -savings, stocks, etc. -and there are two different means of deriving supporting stated income: Asset Depletion and Pledge Accounts. With either option, there is no requirement to cash in assets, so borrowers can have their cake and eat it!
The asset depletion option is fairly simple and may be used to supplement real earnings or as the sole source of income to qualify for a loan. The lender will generally divide assets by a 10-year payment schedule, however the assets used cannot have withdrawal penalties. As an example, if one's portfolio amounted to $1,500,000 this would provide qualifying income of $12,500 per month -with no requirement to cash in funds. The asset depletion loan generally requires a 25% down payment on loans to $1,500,000, with exceptions granted to larger amounts.
The asset pledge loan does not rely on a potential income stream like asset depletion or other more standard notions of stated income. But it does allow borrowers to pledge or secure assets over a 36-month period, thereby minimizing down payment money as well as the amount of required financing and related mortgage payments. It also provides borrowers financing to $5,000,000 with supporting pledged assets for up to 90% coverage of a purchase price. Even better, there is no mortgage insurance! So a purchase price of $5,555,555 would require just 10% down and the borrower could still earn dividends on the pledged investments supporting their scenario. Once again, the borrower can have his or her cake and eat it. Pledged asset loans go as high as $10,000,000 with varying percentages allocated toward financing and pledged coverage. On a $2,000,000 purchase to 90%, the borrower could secure financing to $1,300,000, pledge $500,000, and put just $200,000 toward the down payment.