I could use some help in determining a good route for financing.
My FICO scores and DTI are great but my income comes from multiple sources and is difficult to document.
My income is from W2 part time, consulting (self employment) full time and rental income.
When everything nets out for tax purposes it looks like I make very little, but I don’t.
I also have properties with private and seller financed mortgages and my lender says an asset check will cause me to have to document all the properties income and mortgages. Once they discount my rents it will look like I make nothing there too.
I have been recommended to go stated income. Can someone tell me the pros and cons?
Other options? How does state income affect my interest rate? What other documentation will be required?
Yes the rates will be a bit higher but you can state your true gross income or higher. Or you could go no ratio and not have to state income at all, but will have to verify assets, likely at least 6months reserves. If you can obtain a cpa letter stating that you’ve been self employed as a consultant or real estate investor which ever is showing up on your schedule c’s. then you should be all set
Zach is correct with all of that. Either option you choose, stated or no doc you will have a higher interest rate. Usually 1/2-1% higher than your standard rate. But this varies across the board depending on the lender of course. And you will want to shop this around a bit…The stated and no doc programs generally require you sign a 4506. Which in case of an audit entitles and requires that your tax returns be pulled for the previous 2 years. If your income was stated much higher than what your tax returns show, that’s big trouble. Not only for the mortgage company but for yourself as well. See is you can get into a stated/no doc without having to sign a 4506. If not, I wouldn’t stress about it too much. In the 4 years I’ve been in the mortgage business, with plenty of these deals coming across my desk, I have yet to have this be an issue. Just food for thought though.
Thanks Milo,
That is good info. I don’t think I have to worry about the 4506 though becuse my income is really not that bad.
The main bruise on my taxes is that I acquired many properties in the past two years. The fix-up money came from mortgages, not my pocket so even though it looks like I made no dough tax wise, I did ok income wise.
But I might push the issue anyway just top bust chops.
I am banking on a lender here who has a 100% success rate financing the clients I send her. Some better off than me, some not.
I told her it was my turn now. If she gets back to me with a raw deal, I will contact you.
12 month bank statement programs are really great, just know that you will likely have to source any large deposits into your bank accounts. But as long as you have your closing paperwork that should be easy enough!
Most of the programs that will consider 12 month bank statements are done by non conforming lenders. Non conforming lenders will usually have prepayment penalties and higher rates.
The topic of stated income is very touchy. We have had many conversations with compliance departments from the lenders we do business with. Some opinions vary but the general consensus is that you can state the gross income from your schedule c or corporate tax returns. Anything over that could be considered fraud. Remember, it’s up to you to state on the loan application how much you make. If this amount is not enough to qualify, the broker can not come back and increase it.
A lot of brokers have been told by the lender’s account executive that they can just put down whatever makes the deal work. This could land the broker and client in some deep water.
Any information about properties that have been seller financed for you should be given to the broker. That’s part of the application. Then it’s the broker’s responsibility to inform the lender of all loans they have been made aware of. Will most brokers do this? - ?
A lender will only use 75% of this income to qualify you. In doing so you may have negative cash flow coming from them which will raise your debt to income ratios.
Conforming loans do require a 4506 to be signed. There are several other programs that do not require these. But that shouldn’t be a problem if what you are reporting hasnt been increased.
One more note about stated income. Lenders reserve the right to pull old loan files that you may have qualified on in the past. So let’s say that your last transaction with them had about $5K in income stated and now this deal shows $7K, the lender could become suspicious.
I usually recommend no ratio loans for clients whose income is a bit unique or plan to purchase a larger number of properties. Those who do not have the assets or 2 year history of work needed will have to qualify on no doc.
There are several lenders out there that have no difference in rates for owner occupied, nonowner, full doc, stated, no ratio, or no doc. It really depends on the LTV.
You never mentioned what LTV was needed.
I hope this has been clear because the sourcing of income needs to be done right before sending in to underwriters.
Here’s what I ended up with so far. A no doc, stated income, 30 yr fixed at 7% with 1 point. All they require is two months bank statements.
I definitely forgot to ask about the prepayment penalty. That was good a good call.
I had an opportunity to sell another property but there was a prepayment penalty of 6 mos interest. My last few loans were no prepay penalty so I forgot to even ask about that. Thank you.
Thanks for all the good pointers. At least now I can avoid committing fraud and getting bashed on the interest rate.
Not much. I think you should be qualify for 7% with no PMI. I would use 12 months bank statements if you can instead of 2 months. That should improve pricing.
Lot’s of large deposits I would have to source and that is one of the reasons I am going no doc. Just don’t care to jump through those kinds of hoops for a small decrease in interest.
