Stated Income Home Equity Loan Pros and Cons

A stated income home equity loan is a type of loan people consider when they are either self-employed or involved in some other type of profession where proving income is difficult. As the name implies, people who need stated income home equity loans can simply tell lenders how much they earn when applying rather than providing lots of documentation for proof. There are additionally some people who opt for stated income loans even when they can prove their income because it’s easier. According to Forbes, stated income loans are one of the best options available to the average self-employed person who may have problems obtaining even a low cost personal loan from most lenders.

Advantages of Stating Income for a Loan

Providing lots of paperwork is one of the biggest headaches of applying for any type of loan, particularly home and home equity loans. Self-employed workers tend to get paid at erratic times and might additionally have varying tax schedules. People who aren’t self-employed might also have problems getting the necessary paperwork together for a home equity loan if they haven’t kept up with their paycheck stubs. A home equity stated income loan more or less eliminates this problem because the lender simply takes the buyer’s word for it regarding his income.

Disadvantages of a Stated Home Equity Loan

According to the San Diego Union-Tribune, there has been a close watch on stated income loans because many borrowers are lying about their income to help them get loan approval. The penalty for doing this could include jail time. Potential borrowers should also be aware that home equity loans based on stated income are often not approved without excellent credit. Lenders are taking a risk by assuming borrowers are being honest about their income, so they need some assurance of financial trustworthiness. Stated income home equity loans generally come with high rates of interest, and borrowers applying for home loans by stating income might even need $5,000 or more down to ensure the loan goes through.