Stated income mortgages make a return

Mortgage brokers are reporting that the stated income program is coming back. That’s where a stated income loan is a mortgage where the lender doesn’t verify the borrower’s income by reviewing their pay statements, W-2s, income tax returns or other records.

Rather, borrowers are simply asked to state their income without supporting documentation.

The only requirements for this program are: at least one borrower must be self-employed for at least two years, a 30% down payment is required for loans between $417,000 and $1,000,000, a 40% down payment is required for loans between $1,000,001 and $2,000,000, and a minimum credit score of 700.

According to Westport Mortgage, if borrowers meet these conditions, they are eligible, thus far, for fixed rate and adjusted rate mortgages.

The issue is that stated income loans now shift the risk from the banks to the borrowers.

The borrowers have to sign a notarized affidavit regarding their income and a tax form that allows the bank to get directly from the IRS information to verify income should there be a problem with the borrower paying the mortgage. In this way, the borrower can be held responsible for getting a loan that he/she cannot afford.

A standard guideline is a customer’s mortgage and other loan payments should not comprise more than 45% of the person’s income. Banks may decline real estate investors owning multiple properties if they have poor debt-to-asset ratios. A similar issue can arise with self-employed borrowers, as a bank could include the borrower’s business debt in their debt-to-income calculations for a fully documented loan, making them ineligible.

When income is not consistent or reliable (i.e. in cases of property investors who earn income based on capital gains), stated income loans can help borrowers as they would not be eligible for fully documented loans. Fully documented loans also do not take into consideration potential future income increases. Stated income loans are, typically, provided by smaller banks.

Retiring boomers 

According to a recent Better Homes and Gardens Real Estate Report, 57% of baby boomers plan to move to a new home in retirement. Of those respondents, 39% wanted a small town, 27% wanted an adult community, 26% wanted a metropolitan city and 8% wanted an active adult community (i.e. country club environment).

Of interest is the finding that approximately one-third of those surveyed planned retiring to a different state from their present one. Bankrate.com reports retirees consider factors like weather, cost of living, crime rate, health care quality, tax implications and well-being variables.

The top states for retirement are South Dakota, Colorado, Utah, North Dakota and Wyoming. The least liked states for retirement are New York, West Virginia, Alaska, Arkansas and Hawaii. Retirees wish to move into a smaller home in area that is more affordable, and some hope to time it right to have cash left over from the sale of their existing homes to minimize or eliminate debts. Many wish to move to a more favorable tax state.Although some states haven’t income tax, other taxes (i.e. property and sales tax) are high. Employment is also part of a retiree’s decision, as many wish to work as part of their retirement plan.

 

Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]

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