5 Things You Should Know About Stated Income Loans
For those who have no idea what a stated income loan is, there is a simple explanation. This type of loan requires far less paperwork than traditional loans, therefore expediting the loan process for both the lenders and the individual looking for a loan. These are commonly granted to anyone with great financial standing and a steady income which indicates their ability to pay the loan back. This sounds like a great deal to those looking for a loan with as little hassle as possible. However, there are some things those thinking about stated income loans should consider first.
Differences in Applications
The term “stated income loans” is used generally by banks and other institutions. Therefore, in some cases the applications might not be the same. Therefore, it is best to thoroughly review the information and the type of loan being received with a professional or representative of the institution being applied to in order to avoid unexpected complications resulting from miscommunication.
Because these loans require little information pertaining to the financial information of the borrower, stated income loans are risky for lenders. Therefore, they offset the risk of taking a loss by charging higher rates or expecting larger sums regarding down payments and equity than they might on a traditional, more information-intensive loan.
While many people see the lack of information required to apply for stated income loans as an opportunity to spend freely on whatever they please, it’s important to remember that these claims are oftentimes reviewed. While this doesn’t occur with every claim, it does occur with some.
In order to avoid complications that could result in large losses for the lending company, they will most likely require current, proper tax records which indicate that the borrower is not claiming income which they have not reported. In the event of a house foreclosing, for instance, if the borrower owes money to both the IRS and the lender, the debt to the IRS must be paid in full before the lender may receive payment. Therefore, reviewing tax records helps to minimize loss even in this streamlined type of loan.
Faster is Not Always Better
While most people associated a faster outcome with a better one, this is not always the case. Before applying for this type of loan, it’s important to ask whether or not the time saved is actually a necessity. While these loans do have their benefits, there are also many risks associated with them.
By learning a little more about them, deciding whether or not a stated income loan is right for you can become an easier process. Be sure you understand the repercussions before signing your name.