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Mentioned here is the deductibility of income taxes, otherwise called ‘loans without income verification’ or ‘no documents’ loans. They sound great – until you look at the price.
That’s why they look amazing.
You do not need to provide proof of employment or income verification. Then again, you don’t want to go through 60 days of filing one document after another that opens a can of worms for your income statement. You won’t have to deal with any red tape for filing tax returns and verifying income.
But then there’s the price…
Standard income loans first appeared in 2008. Their parent company was Ameriquest. They were offered by banks as part of their regular repertoire and were cheaper than they are today. What followed was a period of defaults and banks pulled out as fast as they could. Today only a few intrepid individuals sign loans and fund them out of their own pocket. To ensure maximum profits and offset risks, these unconventional lenders set arbitrary terms, conditions, payment rates and schedules.
Here’s the good news for income loans announced in 2015:
If you are a borrower, your lender will request the following:
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no W-2 income document
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No need to file tax return
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no irs documentation
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No need to show proof of employment
Instead, you’ll just be asked to state how much you earn and you’ll be taken for granted. Little wonder these loans are called ‘fake loans’ or ‘fake loans’! Declared income mortgage loans have also become increasingly popular for borrowers with low credit, especially in the case of those who have an unstable source of income or who have underreported self-employed income shown on their taxes. Your application for a stated mortgage loan is approved based on your cash reserves or equity and your ability to afford the monthly payments. Whether or not you can essentially depend on what you tell your lender.
The terms of these loans make them attractive to customers with a wide range of credit histories, including subprime borrowers. The lack of verification makes these loans easy targets for fraud.
other factors
Stated income loans are also attractive because they fill a gap in situations that normal loan standards would not accept. For example, a standard rule is that a customer’s mortgage and other loan payments should not exceed 45% of the person’s income. This makes sense when it comes to applying for a mortgage for a person’s first home. However, a real estate investor may own multiple properties and receive only a little more than their loan payment on each home for each, but end up with $200,000 in disposable income. Even then, a non-stated income loan would get this person rejected, because his or her debt to income ratio would not be in line. The same problem can arise with self-employed borrowers, where the bank will include the borrower’s business loan in its calculation of income with a fully documented loan. Declared income loans also help borrowers in cases where fully documented loans generally do not imply a reliable and stable source of income. Examples include investors who continually earn capital gains.
Finally, even fully documented loans do not consider potential future income growth. (This is similar to a ‘no income disclosure’ loan).
So what’s the catch?
Very. For one there is more interest. Lenders are taking a huge risk by giving you this type of loan, so they want to make sure it’s worth their while. They’ll ask you for extremely hefty repayments – think double, if not triple, the rates of conventional loans. So consider that you will be making generous repayments every month.
Then, the chances of default are high. Banks cover their risks by assessing your repaying capacity. In this way, they reduce the chances of default. The unconventional lenders who hand out these declared income, or ‘no doc’ loans, basically accept anyone who says it. Most of these applicants exaggerate their income to fall into the undesirable levels of bankruptcy.
In August 2006, Steven Christofik, president of the Mortgage Brokers Association for Responsible Lending, reported that his organization had compared a sample of 100 declared income mortgage applications to IRS records, and found that approximately 60% of the sample borrowers had overreported their income. had shown. more than 50 percent.
Fraudulent abuse of these loans was so rampant that in 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act went into effect to ban purported income loans. Section 1411 of the Act states: “A creditor obtaining a residential mortgage loan shall verify the amount of income or assets it relies upon to determine the creditor’s repayment capacity…”.
Today, lenders are conducting their own version of income and asset verification, but many borrowers may still be past due and ruined. Court-cases, stress and bankruptcy are some of the consequences.
Its shortcoming is…
Declared income loans are still offered by some smaller banks. Eligibility requirements are based on stable employment, good reserves, good FICO and less than 40% equity position in the property. Stated income loans are also offered by independent individuals who fund out of their own pocket and can be more lax in their requirements. Declared income loan availability varies from state to state and county to county. This type of loan is ideal for self-employed individuals, or borrowers who do not have a steady source of income, as well as applicants who have a low credit score, and applicants who are unable to review their income documents. Insurers want
The price tag is high, so if you find that intimidating you might want to consider taking a chance on going the traditional route.
Do you think a declared income loan is the way to go for you?
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