Stated Income Loans: Alternatives and Options for 2024

Can you still get a stated income loan in 2024?

Are you self-employed or a real estate investor struggling to secure a mortgage?

Fear not! While traditional stated income loans are a thing of the past, innovative alternatives have emerged to help you achieve your homeownership dreams. Say goodbye to the days of strict income verification and hello to a world of home buying possibilities.

From bank statement loans to asset depletion mortgages, discover how these modern financing options are tailored to your unique needs and can unlock the door to your perfect home.

In this article (Skip to...)

• Stated income mortgages
• Stated income alternatives
• Stated income loan lenders
• Refinancing stated income loans
• FAQ

Read: How to get a mortgage when you’re self employed

What are stated income loans?

Stated income loans are mortgages that don’t require borrowers to provide traditional income verification, such as pay stubs, W-2s, or tax returns. Instead, borrowers simply state their income on the application, and mortgage lenders take them at their word without verifying the accuracy of the information provided.

Stated income loans were popular in the early 2000s among self-employed individuals, those with variable incomes, and others who might have difficulty qualifying for a traditional mortgage.

History of stated income loans

Stated income loans gained popularity in the early 2000s as a way for borrowers with complex financial situations to qualify for mortgages.

However, they played a significant role in the 2008 housing crisis. Many borrowers overstated their incomes to qualify for larger loan amounts, and when the housing bubble burst, these borrowers were unable to keep up with their mortgage payments. As a result, there was a wave of defaults and foreclosures.

In response to the financial crisis, the U.S. government implemented stricter regulations on the mortgage industry. The Dodd-Frank Act of 2010 prohibited lenders from making loans without verifying the borrower’s ability to repay. This effectively ended the practice of true stated income loans.

Do stated income loans still exist?

In 2024, true stated income loans are virtually nonexistent in the mortgage market. Loan officers are now required to verify a borrower’s income and assets to ensure they have the ability to repay the loan.

Some lenders may still advertise “stated income loans,” but these are not the same as the no-income-verification loans found prior to the 2008 housing market crash. Today’s “stated income” loans still require some form of income documentation, such as bank statements, tax returns, or a letter from a CPA. They may also come with higher interest rates and down payment requirements to compensate for the added risk to the lender.

Alternatives to stated income mortgage loans

While true stated income loans are a thing of the past, there are alternative loan options for borrowers who don’t fit the traditional mortgage mold. In addition to traditional loans and government-backed mortgage programs, borrowers may consider non-qualified mortgage (non-QM) loans.

Bank statement loans

Ideal for self-employed borrowers or those with variable income, bank statement loans use 12–24 months of personal or business bank statements to verify income instead of tax returns.

How bank statement loans work

Lenders offering bank statement loans will typically review 12–24 months of your personal or business bank statements to determine your average monthly income. They may also require a profit and loss statement (P&L) to get a better understanding of your business’s financial health.

• Example: Sarah is a freelance graphic designer who has been self-employed for three years. She applies for a bank statement loan and provides her lender with 12 months of personal and business bank statements, along with a P&L. The lender averages her monthly deposits to determine her income and approves her for the loan.

Asset depletion loans

Also known as asset-qualifier loans or asset-based mortgages, these loans enable borrowers to be approved on the basis of their liquid assets rather than their income. The lender uses a formula to calculate the borrower’s monthly income from their assets.

How asset depletion loans work

With an asset depletion loan, your lender will total up your liquid assets (such as checking and savings accounts, investments, and retirement accounts) and use a formula to determine your monthly income from these assets. Typically, they will divide your total assets by 360 (the number of months in a 30-year loan term) to calculate your monthly income.

• Example: John is a retired home buyer with $1 million in liquid assets. He applies for an asset depletion loan, and his loan officer calculates his monthly income as $2,778 ($1,000,000 / 360). With this income, he is able to qualify for a mortgage loan.

Investor cash flow loans

Designed for real estate investors, this type of loan qualifies borrowers based on the projected income of the rental property they’re purchasing rather than their personal income.

How investor cash flow loans work

With an investor cash flow loan, your mortgage lender will use the investment property’s projected rental income to determine your ability to repay the loan. They may require a rental analysis or appraisal to estimate the property’s potential rental value. The lender will then use a formula (such as the Debt Service Coverage Ratio, or DSCR) to ensure that the property’s income can cover the mortgage payments and other expenses.

• Example: Mark is a real estate investor looking to purchase a rental property. He applies for an investor cash flow loan and provides his loan officer with a rental analysis showing that the property is expected to generate $2,000 per month in rental income. The lender uses this information to calculate the property’s DSCR and determines that the income is sufficient to cover the mortgage payments and other expenses. Mark is approved for the loan.

Conventional loans for self-employed borrowers

Fannie Mae and Freddie Mac, the two main government-sponsored enterprises that purchase mortgages from lenders, do offer conventional loans to self-employed borrowers. However, these loans typically require more extensive income documentation compared to stated income loans.

Self-employed borrowers applying for a conventional loan will usually need to provide 1-2 years of personal and business tax returns, along with a year-to-date profit and loss statement (P&L) and balance sheet. The lender will use these documents to calculate your income and determine your ability to make monthly mortgage payments.

Government-backed loans (FHA, VA, USDA)

Government-backed loans, such as FHA, VA, and USDA loans, can also be an alternative for self-employed borrowers or those with complicated financial situations. These loans typically have more lenient credit score minimums and down payment requirements compared to conventional loans.

However, like conventional loans, government-backed loans will require you to document your income with tax returns and other financial statements in lieu of pay stubs. The specific documentation requirements may vary depending on the loan program and your individual circumstances.

• Example: Laura is a small business owner and has been in operation for five years. She applies for an FHA loan and provides her lender with two years of personal and business tax returns, along with a year-to-date P&L and balance sheet. The lender uses these documents to calculate her income and determines that she meets the FHA’s income requirements. Laura is approved for the loan with a 3.5% down payment.

Hard money loans

Real estate investors frequently use hard money loans—short-term loans from private lenders—for fix-and-flip or renovation projects. These loans typically have less stringent income documentation requirements compared to conventional mortgages.

How hard money loans work

Hard money lenders focus primarily on the value of the investment property being used as collateral rather than the borrower’s income or credit score. They may require a down payment of 20–30% and charge higher interest rates and fees compared to traditional mortgages. Hard money loans are usually short-term, lasting from a few months to a few years.

• Example: Tom is a real estate investor who wants to purchase a distressed property, renovate it, and sell it for a profit. He applies for a hard money loan and provides the lender with information about the property’s current value and his renovation plans. The lender approves the loan based on the property’s expected after-repair value (ARV), and Tom uses the funds to purchase and renovate the property.

Other alternatives to stated income loans

It’s important to note that while these state income mortgage alternatives may have less stringent income documentation requirements compared to conventional mortgages, they often come with higher costs and risks. Home buyers should carefully evaluate their options and work with a knowledgeable lender or financial advisor to determine the best financing solution for their individual needs and circumstances.

Subprime loans

Subprime loans are designed for borrowers with lower credit scores or other factors that make them a higher risk to lenders. These loans may have more flexible income documentation requirements but often come with higher interest rates and fees.

Private money loans

Similar to hard money loans, individual investors, investment groups, and non-QM lenders underwrite private money loans. These loan options can be more flexible in terms of income documentation but may have higher interest rates and shorter repayment terms.

Seller financing

In some cases, the seller of a property may be willing to offer financing to the buyer. This can be an alternative to a traditional mortgage and may have more lenient income documentation requirements. However, the terms of seller financing can vary widely and may not be as favorable as other loan options.

How to find and qualify for stated income mortgage alternatives

When searching for alternatives to stated income loans, it’s essential to work with lenders who specialize in non-traditional mortgage products. These lenders may be more familiar with the unique financial situations of self-employed borrowers, small business owners, real estate investors, and others who might have benefited from stated income loans in the past.

To find these lenders, start by researching online and reaching out to local mortgage brokers. A skilled mortgage broker can help you identify lenders who offer stated income loan alternatives and guide you through the loan application process. They can also help you determine which loan products best fit your financial situation and goals.

When applying for a stated income loan alternative, you’ll typically need to provide more extensive documentation than you would for a traditional stated income loan. This may include bank statements, tax returns, and other financial records. Lenders will also consider factors like your credit score, debt-to-income ratio, and overall financial health when evaluating your loan application.

Having good credit can improve your chances of qualifying for a stated income loan alternative and securing favorable loan terms. If your credit score needs improvement, consider taking steps to boost your credit before applying for a loan, such as paying down debt and disputing any errors on your credit report.

Refinancing stated income mortgage loans

If you’re considering refinancing a stated income loan on your primary residence, be aware of potential challenges due to stringent underwriting standards. Benefits of refinancing include lower interest rates, better loan terms, and the option of cash-out refinancing if you have built enough equity.

When transitioning from a stated income loan, expect to provide thorough income documentation, like tax returns or bank statements. Lenders may require higher credit scores to refinance these loans. Consulting with an experienced, stated income lender is key. This is especially true in states like California, Texas, and Florida, where stated income refinancing can be complex due to state-specific regulations and guidelines.

FAQ: Stated income loans

Think you need a stated income loan?

Choosing between a conventional loan and an alternative-income loan can be a game-changer for your homeownership goals. While these specialized programs cater to those with unique income situations, they do come with a slightly higher price tag.

But don’t let that deter you! The benefits of securing your dream home far outweigh the minor drawbacks. If a traditional loan is out of reach, don’t wait another moment to explore your home-buying options.

Start your journey now and discover the perfect mortgage solution tailored to your needs. Your dream home is closer than you think!