Are Stated Income Mortgages a Relic of the Past?

Exactly who was most responsible for the current conditions in the housing market is a matter of opinion. Looking at the reasons why the market collapsed about 5 years ago, there is plenty of blame to go around. Speculation, greed and quick profits were a few reasons. Willing Buyers, House Flippers, Aggressive Brokers and Lenders willing to offer big Stated Income mortgages, all contributed to the biggest decline in property values in the history of our country. Everyone has been affected by the crisis.

Today, life insurance on mortgage balances is an important financial tool to help assure that the mortgage will be paid off and your spouse or family will be able to remain in the house in the event of your death.

Today, when it comes to Lenders and no-income verification mortgages, it is nearly impossible to qualify. During the easy money days under the Bush Administration, the President wanted to encourage every American to own a home. Lending laws and regulations were relaxed and Mortgage Brokers and Lenders seized the opportunity to sell as many loans as possible. The more loans they made, the more money they made – at least until the bubble burst.

While there are still some Lenders willing to consider no proof of income first and second mortgages, they have certainly made the qualifying process more difficult. First, one must either have a substantial down payment on a first mortgage or a good amount of equity in their home for a second mortgage. If one is self-employed and can not document their income, Lenders will expect a minimum of 2 years of work history in the business. Finally, and probably most importantly, the Lender will check your credit score and credit history.

There are several things to know before applying for these types of mortgages. One must be honest with both the Lender and themselves. It is illegal to give false information about your income. Even if you manage to fool the Lender or they look the other way, if you can still get in trouble. If you really do not have the income necessary to qualify for the loan, chances are good that you might have problems paying your monthly mortgage payments. Lenders are taking steps to protect themselves and individuals should also be more careful.

After going through the process of getting a mortgage, it would be awful if you died and your spouse lost the house to foreclosure because there was not enough income to pay the mortgage. In order to protect your house and guard against such a possibility, it makes sense to take out life insurance that will pay off the mortgage in the event of your death. Essentially, such insurance is a Term-Life policy for the number of years remaining on the mortgage. If, for example, you have 20 years left and owe $100,000 on your mortgage, you could take out a 20 year Term Life insurance policy for $100,000 that would be enough to pay off the mortgage.

Stated Income mortgages are rare these days, but they still have their place in certain situations. It is very important that anyone applying for such a mortgage actually has the means or income to be able to afford the home they are financing. Always be honest with the Bank or Lender, even if it means you do not get the loan. In the long run, it is probably for the best. Taking out life insurance on mortgage balances is a good idea, especially if your income is the only income in the household.