As the underwriting crunch continues to swallow up more and more stated income loans, mortgage brokers, loan officers, and account executives need to be a lot more thorough when pre-screening these types of deals.
Gone are the days when you could simply state a borrower was making $25,000 a month, despite only being able to verify $10,000 in deposits in the bank.
These days, you’ll need to verify at least three times what you state as monthly income on the loan application. So if you state monthly income of $25,000, be prepared to document at least $75,000 in assets or you’ll likely be denied financing.
Even if the guidelines only ask for two to four months PITI (Principal, Interest, Taxes, and Insurance) in reserve requirements, the underwriter may still ask for a larger sum of verified assets to ensure investors will buy the loan on the secondary market.
Investors are becoming increasingly weary of stated income loans as mortgage defaults and foreclosures continue to rise, and if you don’t have commensurate assets, you can bet you’ll be shopping your mortgage at more than one bank or mortgage lender.
If you can’t provide full documentation, the only alternative is choosing a SISA documentation type, which allows a borrower to state both income and assets. The obvious downside is higher mortgage rates and more limited loan-to-value restrictions.
But if you have a loan-to-value under 70%, the pricing adjustment for SISA documentation should be minimal, and could save you a lot of headache.
Always take the time to look at every available financing option.