How a Stated Income Loan Works

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A stated income loan is a unique lending instrument that is offered by certain banks. With this type of loan, you can avoid a lot of the scrutiny that comes with a traditional mortgage. Many people are unfamiliar with how a stated income loan works. Here are a couple of things to keep in mind.

No Verification
With a stated income loan, you will be asked how much money you make. You simply fill in the blank on the application and they take you at your word. There will be no further verification necessary. You don't need any pay stubs or W-2's for proof. This type of loan is perfect for self-employed people as they sometimes have trouble proving their income to a bank's standards. 

Higher Interest Rate
While it is great to avoid all of the verification processes of a regular loan, you will have to pay them a higher rate of interest on the loan. A stated income loan represents a greater risk for lenders as they know that most people do not tell the truth about their income. Therefore, they are taking on additional risk and require an additional return for that. This can sometimes amount to thousands of dollars over the life of the loan.