Tuesday, January 17, 2012 - Article by: William J. Acres - RPM Mortgage Inc. -
Is there such a thing as "Stated Income" loans anymore?? The answer is no... Sort of...
The Financial Reform Bill HR4173 signed into law by President Obama on 8/1/10 outlaws stated income and no doc loans.
Section 1411 reads:
''(4) INCOME VERIFICATION.--A creditor making a residential
mortgage loan shall verify amounts of income or assets that
such creditor relies on to determine repayment ability, including
expected income or assets, by reviewing the consumer's Internal
Revenue Service Form W-2, tax returns, payroll receipts, financial
institution records, or other third-party documents that
provide reasonably reliable evidence of the consumer's income
The new law does allow exceptions to this rule for HUD, VA, USDA and Rural Housing Service loans, however the exceptions usually refer to streamline refinancing of these loans.
Lenders are now required to verify that you have income and the ability to repay. For conventional, FHA, VA, and USDA, this means tax returns, w2's and or 1099's and paystubs. However for hard money, soft money, and portfolio loans where the mortgage is not insured, the lender can choose their own form of verification. For example, I had a client that had just had a foreclosure on a property he was $100K negative. He had a 401K and wanted to take some of the money out and use it as a down payment to purchase a home. Under conventional, FHA, VA and USDA, there is a mandatory waiting period of 2 to 3 years after a foreclosure before you can get approved for a new mortgage. We arranged financing through a "Hard Money" lender. Terms and interest rate were ridiculous; however we were able to get financing for him just months after his foreclosure. He was self employed and was putting 40% down. His tax returns show very little income, however he did have a large amount of money going in and out of his business account. The lender used his bank statements for the business account to show he had the ability to repay the loan, thus complying with the new law. So, for the majority of us who wish to use conventional lenders for our financing needs, the stated income loan no longer exists. However if you have no choice but to use "Hard Money" lenders, then financing is available to you with very relaxed guidelines for verifying your ability to repay. Rest assured they will find a way to allow you to pay more than double the going rate, and hit you hard on lender costs, but a loan does exist for you. WilliamAcres.com
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