A stated income home equity loan is one where your bank or mortgage lender does not confirm your income or assets in order to give you an approval. While this seems hard to believe at first, this type of loan does indeed exist and has been a saving grace for those who are self-employed, earn commissions on sales or otherwise have difficulty supporting their income with traditional documentation. Because of the additional risk taken on by the lender with a stated income home equity loan, the borrower usually has to have an above average credit report or FICO score.

How much you can borrow

Sometimes called a “business for self” or “alt a”, this loan allows you to borrow money against the equity you have built up in your home. The amount of equity you have is calculated by subtracting the amount you currently owe on your mortgage (if any) from the current value of the property. For example if your home is currently appraised at $240,000 and you owe $60,000 on it, then you have built up $180,000 in equity. Some stated income home equity loans would permit you to access the whole $180,000 or in other words, refinance up to 100% of the property value.

Purposes for a stated income home equity loan

You can use the proceeds from a home equity loan for whatever you wish. Some of the more common uses are:

• Renovations
• Medical expenses
• Children’s University expenses
• Consolidate credit card debt and/or personal loans
• Vacation
• Purchase a vehicle
• Purchase an investment
• Purchase a rental property

So you can see there are many good reasons to borrow money against the equity in your home, but before the introduction of the stated income home equity loan, it was hard to get approved if you could not provide supporting documentation to prove how much money you make.

Why stated income

The need for this product came about to address the difficulty the self-employed and business owners have meeting the regular mortgage approval criteria imposed by banks, financial institutions and mortgage lenders. Payment affordability is a major criteria lenders consider when determining whether or not to grant a loan. Usually there is a threshold where the lender will not allow your expenses, including mortgage and loan payments, to exceed a certain percentage of your monthly income. This is called your DSR or debt service ratio.

Easier to qualify

The problem with the self-employed is that they legitimately write-off lots of business expenses, which reduces their documented income. Let’s take a cell phone for example. A regular salaried employee may have a monthly cell phone bill which they pay and it has no effect on their documented income. Someone who is in business for themself could have that same cell phone bill, but because they also use it for business purposes, they can subtract that expense and reduce the amount of income they report and have to pay tax on. There are many types of expenses such as this and a good accountant will take advantage of as many of them as possible. This is great for the self employed personal at tax time, as they are reporting a very low income. However it is not so good when they wish to apply for a loan or mortgage, because their income docs suggest their income is not high enough to afford the payments. Of course they can afford the payments, because their actual income is much greater than what they can prove.

When these individuals are applying for credit under traditional, full documentation guidelines, because their reported income is great enough to qualify, they often have to show that their income has consistently been at this level for a number of years. Financial institutions and mortgage lenders realize that the nature of a small business can include volatile revenue so they want to ensure that they income level they are applying with is not an anomaly due to an uncharacteristically successful year. Again, just one more reason why the stated income home equity loan is so desperately needed by this particular market segment.

Who is eligible

It is not just full time self employed people or small business owners who may apply for a stated income home equity loan. There are many circumstances where a regular salaried employee earns additional income beyond what is reported on their pay stub. This could include money from a hobby, internet business, or a second job to state just a few examples. In each of these situations the borrower could benefit from the stated income conditions and access the equity in their home where they otherwise may not have been able to.

Mortgage customers come with all sorts of different personal financial circumstances. Often a cookie cutter, one size fits all product will not be sufficient to meet the needs of the entire market. Innovative borrowing solutions like the stated income home equity loan are just one example of the industry taking notice that it needs to be flexible.

Today we are going to discuss the combination of two great borrowing solutions known as the stated income home equity line of credit. This flexible product allows a homeowner to borrow against the equity built up in the home on a revolving credit line without have to provide documentation to support how much money he makes.

I covered previously in my article called Stated Income Home Loans, that the self-employed, small business owners and commissioned sales people often have a difficult time proving to a mortgage lender or other financial institution how what their true level of income is. They do not get W2s or pay stubs in the traditional sense and often “write-off” a large portion of their income to legitimate business expenses. This leaves them falling short of the debt service ratios that banks use when qualifying borrowers for loans and mortgages.

The stated income loan was introduced to address that problem by allowing strong borrowers to obtain credit without have to provide documentation to prove their income level. While this brought with it a bunch of new challenges for lenders, it allowed the self-employed and commissioned sales people to borrow money with greater ease.

A home equity line of credit is simply a revolving credit line that uses the equity you have built up in your home as collateral. Banks love real estate security and will gladly offer high limits and low interest rates in return for it. Once set up, a HELOC allows you borrow funds whenever you wish. As that amount is paid down, it becomes available to you to borrow again up to the limit of the line of credit. The funds can be used for anything from a down payment on a rental property to a new car to financing your children’s education.

The stated income equity line merges both of these unique needs into one great mortgage product. For those who are unable to support their income by traditional means, yet desire the low rates, high limits and flexibility of HELOC, this combined product is a perfect fit.

A good credit score is still really important. But having said that some stated income programs allow you to borrow up to 100% of the purchase price or the appraised value of the home in the case of a refinance.

Before the sub-prime mortgage meltdown, it was possible to obtain a stated income line of credit without verifying assets either. These are becoming increasingly hard to come by and it is more common to find stated income / verified assets loans and equity lines.

The days of one borrowing solution fits all are long gone. Lenders have gotten more and more creative to meet the unique needs of today’s home buyers. If you are self employed and have built up equity in your home and would like the ability to access it as you need it, instead of all at once in one lump sum, the stated income home equity line of credit was created just for you.

In today’s tumultuous real estate environment, with decreasing property values, many homeowners are finding themselves owing more on their mortgage than their home is worth. Further more they were giving a mortgage that was beyond their means and now have come to the realization that they can not afford the monthly payments. They can’t sell the house because they can’t get enough for it to payoff the mortgage. Bankruptcy is looming and appears to be the only option. Or is it? Enter the mortgage short sale.

A mortgage short sale, or short pay as it is sometimes called, occurs when the lender agrees to accept less than the full balance of the mortgage to consider it paid off.

It is in the financial institutions best interest to accept a short pay mortgage if it is likely they will end up in a foreclosure situation. Banks do not want to own real estate. It is not their strength and can end up being a very costly proposition for them. The property needs to be maintained or repairs need to be done before it can be resold. And then they are not going to get enough for it to recover the lost mortgage, because you already determined that the loan balance exceeded the homes fair market value. So they are going to end up taking a bath on it regardless. It is in their best interest to minimize their losses and move on.

The borrower needs to demonstrate to their lender that they really are on the brink of bankruptcy. They need to illustrate that the home can not be sold for enough to pay off the mortgage and that accepting a mortgage short sale is going to save the bank more grief and expense later on. This is often best done by writing a letter and attaching any applicable supporting documentation.

This will not work all time. If there is not a big discrepancy between the amount owing and the appraised value then the mortgage company likely won’t go for it. But these deals are done all the time and being aware that a mortgage short sale is a consideration, can possibly save you from the anxiety of a foreclosure and keep your FICO score in tact.

In years past it was much simpler to apply for and be approved for a stated income home loan. You did not need to have an exceptionally high credit score, or even necessarily a down payment and you could be approved for a mortgage without providing documentation supporting your earnings.

Default on Stated Income Loans

Well the landscape has changed and mortgage companies that allow stated income for financing are no longer being as fast a free with handing these out. You need to establish yourself as being much more credit worthy in today’s environment. In the post sub prime mortgage meltdown, default on stated income loans is on the rise.

Introduced as an opportunity for those with income from difficult to verify sources, stated income home loans were a boon for the self employed and commissioned sales people. People in these circumstances often have difficult time providing proof of their earnings. For example, they are not given pay slips, or even W2’s. Sometimes the mortgage rate or associated fees are a little higher, but these costs are offset by the opportunity to purchase home where you otherwise may not by able to under traditional qualifying criteria. And if you FICO score is very high, you can even finance one hundred percent of the purchase price. Naturally, if your credit score is way above average, high interest rates can be mitigated.

Stated Income Mortgage Rules

Hopefully with the tighter controls on qualifying for stated income home loans, they can work toward shaking their stigma as liar loans. You see it was not uncommon for potential home buyers to opt for this program even when they were capable of meeting the requirements of full doc loans. They would misrepresent their borrowing capacity so that they could be approved for a mortgage that was in fact beyond their means. What these applicant don’t realize is that lending institutions have put these policies in place to not only protect themselves from foreclosing, but to protect their clients from being put in a situation that will ultimately be difficult for them to live up to. Stated income home loan rules are put into place for your own protection and it really is not in your best interest to try to circumvent them.

Fortunately with a mortgage refinance, bad credit loans are providing homeowners in distress more options than they have ever had in the past. Previously there were few things more stressful in life than the prospect of losing your home. The thought of being homeless is terrifying and for a family with children the fear of the unknown could be downright paralysing.

A home is more than simply a roof over your head and a place to go to sleep at night. A home represents safety and security. A home is where we find solace as family pulls together to face life’s challenges. Unfortunately as we meet those challenges, they put into jeopardy one of they things that has provided us with the strength we needed. Family illness, job loss, marital breakdown and death can all be financially devastating. The soundest of financial plans can come undone when facing one of these setbacks. While we pool resources to where they are most needed, other bills go unpaid, credit ratings drop and loans go into default. But by applying for a mortgage refinance, bad credit loans can be cleared and you can have a fresh start.

It goes without saying that when you borrow to buy a home, it is critical to meet your monthly obligations. If you fail to do so you seriously run the risk of the financial institution taking legal action against you to foreclose upon your home. This is the extreme case, but it does happen none the less. It is in times like these that it is very important to consult with a lawyer and understand the ramifications of you any further actions you take. If you hope to arrange a mortgage refinance, bad credit loans that are mishandled could stand in your way. You do not want to compound one problem, by acting prematurely and creating another one.

Rewriting your mortgage to resolve outstanding debts can help keep your house even though you have missed payments. While bad credit is a term that certainly carries a negative stigma it in and of itself does not make you a bad person or say definitively that you will not pay any future loans as agreed. There are mortgage brokers that will shop for you to find a lender that is willing to look past the numbers and understand the circumstances that have put you in the situation that you now find yourself.

You may have to concede to paying a higher interest rate after refinancing but if this allows you to keep your home and avoid foreclosure it may be a small price to pay, especially when you compare it to the alternative. So while your bad luck may have just been poor timing with a mortgage refinance, bad credit loan suffering could be eliminated as well.

Getting a mortgage with bad credit attempts to bypass one of the most important criteria that determines whether or not you can get a loan: your previous credit history. So much depends on your credit record and how you have handled your previous responsibilities. A poor credit history suggests that your loan application will have difficulty being approved. This problem is made worse if you have declared bankruptcy or been foreclosed upon. This previous credit challenges will also get in the way of applications for home equity loans and second mortgages. However all hope is not lost and people with bad credit can get mortgages or financing to buy a home. Bad credit mortgages are available to people who need them. They are a little harder to find so you really have to do your research to connect with a lender who specializes in your type of situation.

These are what are referred to as sub-prime lenders. Banks and credit unions would be prime lenders and mortgage finance companies that charge higher rates and fees to borrowers with poor credit are sub-prime lenders. The have got a lot of bad press lately, but there is a market to lend to people with lower credit ratings. Often these individuals have found themselves in this situation due to circumstances beyond their control. Any number of reasons such as job layoffs, medical expenses, marital breakdowns can contribute to the decline of someone’s credit rating. Once the problems are put into the past the borrower may be an excellent client, but with their bad credit rating, they will not have the same options available to them as borrowers with a clean credit report. Before getting a mortgage with bad credit from a sub-prime lender it is imperative that the borrower review all of their options and if they intend to proceed they must read carefully all the fine print. The costs and fees can be unreasonable and the borrower needs to make themselves familiar with all the details.

And remember it is possible to find a loan at a good interest rate and acceptable charges, even if you have a poor credit history. If you are in this situation, talk to real estate agents, mortgage brokers and online lenders. You can get a good deal.

In this case comparison shopping is even more critical. Compare and review and you can be certain that you will get a mortgage with bad credit that has a reasonable interest rate and affordable payments.

Owning your own home is a dream come true for many people. Finally being free from paying rent to somebody else and effectively paying down their mortgage can be a great source of satisfaction. Now that you own a home you have more borrowing options available to you when you need them. Specifically if you have paid down your mortgage balance significantly you may be eligible for an interest only home equity line of credit.

Sometimes called a HELOC, this can assist you in addressing a wide variety of financial circumstances. Whatever you needs are you can access these funds and distribute them however you wish.

You must exercise caution however, because you are pledging your home as security for the interest only home equity line of credit. If you fail to make your payments on time as agreed you could lose your house. The responsibilities and consequences are the same as for your original mortgage loan.

Some expenses just can not be avoided. Examples are medical bills or children’s’ university tuition. In these cases taking out an interest only home equity line of credit will enable you to access funds at the lowest rates possible. There is not really a downside once you acknowledge that they money is going to have to be spent one way or another regardless.

Another popular purpose for a HELOC is debt consolidation. Simply put, compared to the interest rates being charged on credit cards or other unsecured borrowing options; the interest rate on this line of credit is significantly lower.

Remember not to lose sight of the fact that your home is collateral for this and you must make your payments or risk losing it.

You need to be honest with yourself about how disciplined your are. If you just make interest payments on an interest only line of credit it will obviously never get paid off. The flexibility allows you to make lower payments around times when cash flow is tighter, like Christmas for example. But if you are not someone who will make regular principal payments then you may be best off by applying for a Home Equity Loan instead. With a Home Equity Loan your payment will always include an amount that is going towards paying down the principal.

It is thus recommendable that while you are considering the flexibility of a credit line, if you need a lump sum fund, you may consider taking out a Home Equity Loan instead. This is because in a home equity loan, you pay the interest and part of the principal debt regularly.

The bottom line is that when purchasing your home you have acquired an asset that is valuable to you in many ways. Not only for the roof that it puts over your head, but for they new lending power it has extended to you. An interest only home equity line of credit is a flexible and beneficial tool, but like all tools it must be handled with tremendous care and responsibility.

Real estate agents help people who are buying a home find people who are selling a home. A lot of real estate agents also assist property managers by finding tennants for landlords. Often real estate agents are contracted by property management companies to maintain a property while it is listed for sale. They will tend to such matters as ensuring the home is presentable for sale as well as ensuring that the pipes don’t freeze etc in cold weather.

The real estate agents get paid by charging a commission for their services. When they find a buyer for a home that is selling they will get paid a pre-determined percentage of the sale price. If they are carrying out duties for a property manager then they may get paid a percentage of the rent collected.

A lot of trust is placed in realtors. Often the keys to the home are left with them and they have free access to the residence. They will arrange viewings for interested buyers etc. Because it is their business to know what is going on the the real estate market, they are an excellent source of up to date information. In fact, often what a real estate earns for a living is determined by how skillful they are at staying on top of this information.

Realtrs are the best place to turn if you need to know what is going on in the market in a particular region. They can often provide very quick data. They will know what the going prices are for specific types of homes in specific locations. Additionally through their relationships with lenders they can also suggest where you can go to get the lowest mortgage rate possible.

Some who is selling their home can get thousands of dollars more my taking the advice given by a good real esate agent. A good real estate agent will also take the time to understand the unique needs of a home buyer and give suggestion and what type of home they could find given their available budget. He or she will not just give them listings of a bunch of properties but will tailor their suggestions to what they buyer is actually looking for. And remember this type of quality service works in the best interest of the real estate agent as well. The sooner they can sell a home the sooner they will get paid and if they do a good job for both the buyer and the seller the will get more business through referrals.

If you are buying a home or selling a home, ask your friends, family and co-workers if they have any personal recommendations of a real estate agents that they have had good success with. It is so much better to get off on the right foot with a good one then to try to undo they damage, cause by one that is know to be ineffective.

Interest-only loans are the latest method to deal with high home prices. Interest only mortgages allow borrowers to have a lower initial payment and are a good option if you believe you will have a greater income later on. Interest only mortgages are often the only way that first time home buyers can afford to pay for a mortgage, at least in the first few years.

By definition interest only mortgages are loans that allow the borrower to pay only the interest on the loan for a predetermined period of time. During this period none of your monthly payment is going towards the principal.

Interest-only mortgages can be a wonderful way to enter the housing market. They are often used when home prices are so high that a conventional mortgage payment is out of the question. They are becoming more popular as borrowers attempt to reduce their monthly mortgage payments when interest rates are rising.

Interest-only mortgages can be beneficial in some cases, but the best way to repay a mortgage loan for most people is still to set up a fixed amortization. If the only way a buyer can afford to purchase a home is with little or no down payment and interest only monthly payments, it may be an indication that they are taking on too much risk. It is not advisable to stretch your budget unrealistically.

Borrowers should only consider this if they are confident that their income will rise over time so that they can meet the increased payment demands when the interest-only period is over.

Remember you aren’t building up any equity when you are only making interest payments; only the increase in value if the home appreciates.

Borrowers with irregular incomes can benefit from interest-only mortgages. These includes the self-employed and commissioned sales people.

Interest-only loans have a slightly higher interest rate, because they are riskier for lenders.

Payments are lower than those of a conventional home loan, because you are paying only the interest charges. Many buyers choose the minimum payment option because it cuts their monthly costs by hundreds of dollars and helps them afford their purchase.

Interest only mortgages are a popular but largely misunderstood home loan option that offer low initial payments over a fixed term. Interest only mortgages are going to be more and more popular in the future.