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October 28, 2014

The Return of Stated Income Loans

by Aaron Crowe on October 07, 2014

Small business owners and the self-employed who have difficulty being approved for a traditional home mortgage because they can’t provide pay stubs or tax returns to show their income are getting some relief.

Stated income loans are being offered by companies such as Unity West Lending and Westport Mortgage, according to a Reuters story, giving such borrowers a chance to buy properties that they could rent out. Also called “liar loans” before the housing bust, the loans have gotten a bad rap because some borrowers produced fake bank statements or at least “fudged” their income to buy houses they couldn’t afford.

Instead of having to provide tax returns or pay stubs, stated income loans require demonstrating an ability to repay through verifiable bank or brokerage statements and enough assets to make six to 12 months of payments.

Still, the loans have a place in the lending environment, mainly self-employed people just starting out and small business owners with startups, says Bennie Waller, a professor of finance and real estate at Longwood University in Farmville, VA.

“However, lenders may be venturing down a road that was a contributing problem to the housing crisis,” Waller says.

See full story here

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