If you’re looking at loans, you
may have found the terms “full doc” or “full
document” loans, and “stated income.”
So what are these two terms and what can they mean for
you as a borrower?
The two terms are often used by lenders to describe
the way certain points of your eligibility for a loan
will be determined. Lenders typically have several requirements
for making loans. They usually look at credit history
and credit scores, but that only gives the lender a
good look at how much outstanding credit you have and
whether you’ve made timely payments on those outstanding
loans. It doesn’t fully address whether you are
able to make payments on a new loan. To determine that,
lenders want to know how much money you’re making.
They’ll weigh that against your monthly payments
in an effort to find out if you can make the payments
on this new loan as well.
The industry generally recognizes two ways of determining
income. Full doc (sometimes called fully documented)
loans are one of those. Stated income loans are the
other.
Fully documented loans require that you have full documentation
of all income. You’ll have to provide proof of
your income that can be fully verified. Statements from
employers are typically required for a full doc loan.
But what happens if you’re self-employed, have
a temporary employment position or your employer simply
isn’t cooperating with your need for this documentation?
Some lenders accept limited documentation, usually called
stated income. This simply means that you aren’t
able to provide the required documents. For example,
a person who is self-employed or owns his own business
may have ample income to cover the loan payments. But
in this scenario, there just isn’t anyone who
can sign an affidavit stating that the person is employed
and that he makes any certain weekly amount. In this
case, the lender accepts other documents as proof –
income tax receipts and company books are examples of
ways to meet stated income requirements.
Full doc and stated income may apply to your assets
in the same way. In this case, your assets are considered
as part of your loan application – often in the
case of refinance loans, home equity loans or a personal
or business loan.
Whether a stated income or full doc loan is best depends
on your personal situation. Most lenders accept and
expect full documentation so be sure to ask if you expect
to have trouble meeting those requirements.
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