It is usually necessary for potential borrowers to thoroughly document their level of income when applying for a mortgage loan. This can be difficult and/or time-consuming for some borrowers, such as independent contractors. However, a type of loan called the Stated Income Mortgage is available and requires substantially less documentation.

Basically, the lending institution allows a borrower applying for this type of mortgage to state his or her income amount, rather than having to prove it. The lender relies more heavily on other financial information about the borrower, and often demands a significant down payment to reduce the greater perceived risk it faces. The responsibility of making sure monthly earnings are actually high enough to keep up with the mortgage payments is left up to the borrower.

An example of this type of loan is the Alternative Stated Income Mortgage offered by Freddie Mac through various lenders. Approval for this loan is largely based upon the borrower’s credit score, and either fixed or adjustable rate options are available. However, it can only be used for purchasing single unit residential properties, and mandates a twenty-five percent (minimum $25k) down payment. This kind of mortgage also involves less exposure of financial details.

Some people have accused Stated Income mortgages of encouraging dishonesty about personal income levels. Senator Chuck Schumer’s web site indicates that he introduced legislation last year to ban Stated Income mortgages, along with various other non-traditional mortgage types. It could be argued that borrowers need to be responsible and only take out loans they can genuinely afford to pay back. However, it remains to be seen whether or not Stated Income mortgages substantially add to foreclosures, which would be to the detriment of both the lender and borrower.

Additionally, many banks do not require the confirmation of assets (they are also “stated”) when Stated Income mortgages are applied for. A number of national and local lending institutions issue these loans, including Amerisave, Nationwide Mortgage Loans, and Florida Mortgage Corporation. Certain lenders, such as CommercialBanc, offer this type of mortgage on business properties as well. Such mortgages are sometimes referred to with other names, like “low doc.”

Stated Income mortgages can appeal to some people who are not self-employed, as well. They save time and provide greater confidentiality in the application process. Also, as the Amerisave web site points out, someone who just gained employment a short time ago (and cannot document wages) may find this type of loan desirable.