Stated Income Loans

A "stated income loan," often also called a "no-doc mortgage," allows borrowers to declare their income without providing extensive documentation, like tax returns or pay stubs, to lenders. While these loans were popular before the 2008 financial crisis, they are now much harder to find and are subject to stricter regulations. A stated income loan is a type of mortgage where the borrower declares their income on the loan application, and the lender relies on that stated income, rather than requiring extensive verification, to determine loan eligibility.

Before the 2008 financial crisis, these loans were attractive to borrowers with non-traditional income, like self-employed individuals, those with inconsistent income, or immigrants, as they offered a way to obtain financing without the hassle of providing traditional income documentation. The ease of obtaining these loans, combined with lax lending practices, contributed to the housing bubble and the subsequent financial crisis. Following the crisis, the Dodd-Frank Act was passed, requiring lenders to verify a borrower's ability to repay a loan, making it much more difficult to obtain a true "no-doc" mortgage.

While true no-doc mortgages are rare, some lenders still offer loans that rely on alternative income verification methods, such as bank statements, rather than traditional documentation. These loans can be beneficial for self-employed individuals, those with non-traditional income, or those who need a quick loan to purchase a property.

Pros:Faster approval and funding, reduced paperwork, and greater flexibility for borrowers with non-traditional income. Cons:Stricter terms, higher interest rates, and a greater risk to lenders, leading to higher rates and fees.