What Is A Stated Income Second Mortgage

Many people ask me about a stated income second mortgage and whether or not it is a legal way to borrow money. Ethical and legal questions aside for a moment, it is a common practice in the mortgage and finance industry to offer stated income loans for persons that are self employed or for other employees. How it works is by one party, such as a spouse claiming his or her spouses income as their own. This may be done because the spouse applying for the stated income mortgage loan has the credit score to get the loan, while the other does not.

This is called a stated income loan and by applying for one of these loans, you are basically lying about your income to the lender. However, with a stated income mortgage the lender is agreeing not to verify anything further about your income except the fact that you work there. So, if Spouse A makes $1000 a month and has perfect credit, then they may claim Spouse B’s income, which is quite a bit more, if Spouse B has poor credit. Then, the lender will simply verify Spouse A’s place of employment, rather than their income to get the loan to go through.

It may not be ethical by the strictest standards, but it is legal, as the lender can enter into any agreement they wish with the loan applicant, and stated income loan is done with the cooperation of the lender. The stated income mortgage loans allow for certain factors that make it difficult for some to get financed for a mortgage, such as income from self-employment or a recent increase in salary that now makes the person eligible for a loan, while their credit does not. A stated loan is common and if you have good credit while your spouse does not, don’t be surprised if you are offered one.

These loans are intended for people who have the income to afford the mortgage and do meet the credit requirements, but cannot produce full documentation for the purposes of the loan. In fact, that was their original purpose. For instance, normally a mortgage company would ask for two to three years of W2 forms or tax returns from when you filed taxes to prove that was indeed your income for the past two or three years. That is your proof of income and they will verify whether or not you are still employed by calling and verifying this information manually.

If you cannot produce tax returns for the past two or three years for whatever reason, then you do not meet the requirements of disclosure that the mortgage company requires or full documentation, as it is sometimes called. For this reason, lenders use the practice of stated income mortgages and loans. Another reason may be a change in jobs recently where your income is basically the same, but you have no proof of it over the past two to three years. These are all reasons why a stated income second mortgage might be offered.